Debt Management Strategies – Pros and Cons
How Debt Solution Aides in Preventing Lender Harassment
Debt solution, for instance debt management plan, aides prevent lender harassment. Unsecured debts, for example credit.
Debt management strategy is an agreement between a borrower and creditor. A borrower agrees to make monthly repayment of a minimum of £100 towards the credit card debt, the unsecured loans and additional unsecured credit consensus. On condition that the debtor maintains repayments, creditor harassment is quite rare.
Merits of Debt Management Strategy
- Halts creditor harassment. Debt management strategy is normally a voluntary agreement, though most lenders will not chase someone for debts yet they are aware that they are working on paying them;
- Hinders personal bankruptcy. It is possible to introduce it quickly and, after creditors know that they will be getting some payment, a good number of them would be comfortable with that than get nothing by having the debtor declared insolvent;
- Affordable monthly payment. Agreeing to some debt management strategy implies that a debtor may consolidate all sorts of unsecured debt. Better yet, a monthly repayment made is disseminated to other creditors on pro rata basis;
- Full flexibility. Since such debt relief program is not legally binding in nature, a debtor has a free will to pay down the debt or opt for another debt solution, for instance Individual Voluntary Arrangement, any time wished. Alternatively, one can raise the contributions to debt management strategy to minimize the overall burden of debt.
Demerits of Debt Management Strategy
- No assurance of creditor acceptance. Although most lenders would agree to a substantial offer under debt management strategy, there is no assurance that this will happen;
- Credit report. Debt management strategy shows on the credit report implying that more unsecured borrowing can be difficult. However, one might still have the chance to borrow, though the APR rate will be quite higher. This will not adversely affect those who already possess bad credit due to missing to pay on unsecured debts;
- No write-off of debt. Although a debt management strategy objects creditor harassment, it can lead to charges and interest being frozen; it does not lead to credit card debt or unsecured loans being written-off. This can make it more feasible to contemplate on other debt solutions, for example such as Individual Voluntary Arrangement, in which 75% of the debt, can be canceled;
- Debt management strategy charges. The charges put in place by private firms are normally about 15%. This minimizes the amount which goes towards paying down unsecured loans as well as credit card debt implying that debt situation can stay for several years.
Although debt management strategy is against creditor harassment, it is still a debt solution which does not have a definite term. Different from IVA, debt can exist for many years. The Debt management strategies are good for handling amounts of debt, but those who owe excess £15,000 should contemplate on another debt solution, for example personal bankruptcy or Individual Voluntary Arrangement
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