Before going into what a debt management plan can do for you as an individual or as a business, it will be good to decide its scope. It is a delusion among various individuals that debt management plans can only be used for getting rid of the existing mountainous debt. Although, debt management plans have immeasurable ways and methods. Debt management plans may be used with advantage to manage the debts to a certain level. It must be acknowledged that an accurate and proper management of debts gives debt consolidation and other methods employed to fight the menace of debts opportunity to be superfluous. Prevention is better than cure. Most of us believe the adage to be genuine. It is through debt management plans that one can actually develop the habits in one’s life and dealings.
In this article, I will illustrate the prevention as well as defensive uses of debt management plans. Since the defensive part of the debt management plan is more accustomed, I will first discuss the various plans to deal with debts that an individual or business has already induced. The debt management plans that come in this directions are as listed below:
- Debt consolidation loans
The most conventional method of dealing with debts is debt consolidation loans. Debt consolidation loan is essentially meant to arrange easy finance for clearing the mound of debts. A single loan is drawn after consolidating the various debts. One aspect that makes debt consolidation loan being distinguished other loans is that the borrower/creditors get help and guidance from the debt consolidation loan provider in the settlement of debts. Expert negotiation skills and a proficiency in debt settlement recommend the services of the debt consolidation loan provider in this regard.
- Debt consolidation mortgage
Debt consolidation mortgage play a major role in the debt management plans. A debt consolidation mortgage is basically a second mortgage. In this method, the borrower requests the mortgagee who holds the first mortgage to the home to repay his debts. In exchange, the borrower includes the debts while making the monthly repayments. The advantage of the debt management plan is that finance is available for debt consolidation at rates equivalent to a mortgage, i.e. at a cheap rate of interest.
- Debt consolidation through remortgage
While debt consolidation mortgage involves dealing with the same mortgage creditor/lender, debt consolidation through remortgage involves shifting to a better-optioned mortgage lender who offers a better rate of interest. In this debt management plan, the borrower or the mortgagor requests the new mortgage lender to include several debts along with the unpaid amount on the original mortgage for disbursement. Again, this will help the borrower get cheaper finance for debt consolidation at the rates of a mortgage.
- Debt consolidation through credit cards
Credit card as a debt management plan will be especially useful when the debtor wants a quicker settlement of debts. In either loans or mortgages, a credit card user need not wait for the debt management plan to be approved and sanctioned. Another advantage of credit cards as a debt management plan is that borrower is not required to pledge any of his/ her assets to back the loan. This can, however, be too expensive for the credit card user.
- Debt consolidation through home equity loans
The home equity loan is a secured loan taken against the equity in ones home. Home equity loans put a convenient method of debt settlement. A home equity loan is a multi-purpose loan that can be used with diverted advantages whether in a debt management plan or for making home improvements. Since home equity loan is secured, it provides cheaper finance. However, the borrower needs to be regular in making repayments to protect his house from repossession.
- Debt consolidation through debt settlement
This form of debt management plan involves associating with a debt settlement company. The debt settlement company undertakes to repay the debts while the debtor repays the amount through small monthly installments to the debt settlement company.
As discussed before, the prevention methods are equally important strategies employed to avert the occurrence of debts. Debt counseling aims to impart debt management training to individuals as well as businesses. People are taught the manner in which to manage their revenues. Many of the tips provided as a part of the debt counseling techniques are time-worn. The purpose of debt counseling from a certified credit counselor or financial expert is not to recall these techniques, but to help people through innovative ways and means to employ these techniques in their life.