Debt Settlement Program

Debt management plans are offered by most credit counseling companies to help over-indebted individuals manage their unsecured debts. The plan is drawn up according to the debtor’s capacity to pay. The counseling companies will then negotiate with creditors to reduce interest rates and/or eliminate late and over-the-limit fees.

Through debt management plans, debtors consolidate their unsecured debts into a single amount payable monthly to the debt counseling company. The debt counseling company then distributes the payment to the debtor’s creditors. This allows debtors to make timely payments to their creditors and keep their accounts current. It should be noted, however, that only debts submitted to the management company are included in the management plan.

In order for debt management companies to draw up an effective plan for debt management, they carefully assess several factors that affect the debtor’s capacity to pay and the creditor’s willingness to negotiate. These factors include the debtor’s overall financial situation, monthly income, priority secured debts, necessary expenses and total monthly expenditure. An evaluation of the debtor’s annual financial status is also carried out to ensure that the plan remains affordable for the anticipated duration.

Unlike other debt settlement programs, what the debtor pays to the debt management company is directly applied and disbursed to the debtor’s various debts from different creditors. However, debtors should remember to monitor their billing statements to ensure that their debt management plans are regularly executed and that they are reflected in their monthly statements. If there are discrepancies, debtors should contact their debt management company immediately so that measures will be promptly taken to remedy the situation. Otherwise, negative information may end up on the debtor’s credit report.

If you have hired the services of a management company to execute an approved debt management plan, do not just leave it up to them to make certain of its implementation.
You will still suffer the consequences of late payments even if you are using a management company in paying your debt. It is therefore crucial for debtors to ensure that their management company will disburse payments within their billing cycle to avoid late payments and the penalties and charges that may be imposed.

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