Monthly payments become voracious monsters when your income becomes insufficient to make them on time. Living within your means can quickly become a challenge if your income decreases, you encounter emergency expenses, or rapidly increase your debt.
You can, however, meet and conquer this challenge by designing a workable debt management plan. Tame the monthly payment monster by building everyday saving habits and analyzing your current debt structure.
What Is a Debt Management Plan?
There are times when even the best designed budget simply doesn’t work. When your income and expenses do not “match,” you often need some outside guidance to transport your budget back into focus.
Legitimate credit counseling agencies or a friend/family member with high-level financial knowledge and experience can offer wisdom, expertise, and even creditor negotiation assistance. The goal of a debt management plan (DMP) is to restructure monthly payments, usually lower, to permit you to meet your budget. Living within your means once again will bring you great comfort and stress relief.
How Does It Work?
While not complicated, DMPs often work better when a third party impartially handles your problem. Here are typical components of most DMPs.
- Financial condition analysis. The first step requires a professional to examine the true state of your economic situation. This is necessary to create an effective “road map” to permit you to bring back your budget into balance. By learning where you are and where you want to be, the third party can create the “directions” to reach your destination.
- Negotiate lower interest rates and fees. Typically, budgets gone wild include credit cards, medical charges, and other unsecured loans. Requesting lower interest rates and waiving prior fees can help quickly reduce your total debt picture. Removing accumulated “junk” fees and reducing high interest rates (18 to 25 percent) have an immediate and long-term influence on your cash flow.
- Construct more favorable repayment terms. Along with reduced interest rates, installing a more modest repayment schedule improves your monthly available cash position. For example, a current loan with 24 monthly payments could be stretched to 36 months, lowering the customary amount due.
- Examine the benefits of one monthly payment. As your credit counseling agency or financial mentor restructures your various repayment terms, you might find that making one regular monthly payment works better for you. Your counselor can then manage these funds to make timely payments to your creditors.
Be sure to thoroughly investigate your prospective adviser, be it a credit counseling agency or individual. If you decide to let a third party restructure your debt and budget, you must be comfortable that they or he/she is working exhaustively on your behalf—not their own.