Personal Debt Management Plans
Personal Debt Management Plans also known as Personal Insolvency Agreements in Australia, are an alternative way of reducing debts.
This is quite different to debt consolidation as it does not include the repayment of ALL the debt but only part of it, the balance being 'written off' or wiped off the ledger by the creditor(s).
It has some advantages as well as disadvantages so it is well to understand it before one embarks upon a debt arrangement or management plan.
What is a Debt Management Plan?
With a debt management plan someone else actually takes over and manages your debts for you. You simply tell the counselor or finance manage the details of your debts, to whom you owe money and how much and how much you can comfortably afford to pay each month, and the counsellor takes over. They contact your creditors and negotiate an agreed amount to pay off each month. They then pay the creditors the agreed amount, usually a percentage in the dollar or pound, and pays that, then recovers the money from you in the form of the monthly repayment. In other words you pay the manager a monthly payment and they pay your creditors.
In this arrangement the creditor generally gets a lot less than if you paid them your selves or got a debt consolidation loan and paid them out. The manager usually takes a pretty hearty cut from the funds.
This arrangement can be 'formalised' in Australia by the use of a Personal Insolvency Agreement. When this is completed creditors are not allowed to contact you and cannot enforce any court remedies (such as garnishees, taking possession of your goods, or bankrupt you). Also interest charges are frozen.
Probably the biggest disadvantage with this type of arrangement is that it does not help your credit rating very much. And it can adversely affect your ability to borrow money at a later date when you have fully paid out the arrangement and all is done and dusted.
A Personal Insolvency Agreement is usually made to cover a period of five years. The total amount fixed to be repaid is worked out over 60 payments or five years and will generally be less than the current total of your debt repayments.
To organise this your financial situation is explored to see how much you can afford to pay on a regular basis. Legal documents are drawn up and a meeting of creditors is held at which point it is established by a vote of the creditors. Regular payments are then made to a trustee who then distributes money to the creditors according to the established and agreed arrangement.
Of the two options, Personal Debt Management Plans and Debt Consolidation arrangement, the debt consolidation arrangement is the better of the two. Principally because:
It does not affect your credit rating.
It demonstrates taking responsibility to pay all your debts rather than give control of your finances to another.
With this in mind you can review a number of debt consolidation companies at Debt Consolidation Reviews and find out which is the most appropriate debt consolidation arrangement for you.
For more information on Debt Consolidation companys, go to
Debt Consolidation.
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