A debt management program refers to a set of activities laid down by a credit counseling company to aid a debtor in paying off high-interest rates. These debts include credit cards, medical bills, and emergency personal loans. In Singapore, a debt management program has been initiated, but Credit Counselling Singapore with a backup from the popular consumer banks and credit card issuers. These financial organizations are represented by the Association of Banks in Singapore to help individuals in a financial mess consolidate their loans with proper guidance.
This article will give an overview of how a debt management program works so that consumers can pay their debts at an accommodative interest rate of below 8% and, at the same time, pay off the debt between 3-5 years.
It is important to note that credit counseling firms will offer support by detailing your income and expenses, thereby coming up with a new household budget that one will afford.
- Initial Meeting with the Credit Counsellor.
The first process is to know who is spearheading your debt management program. In the case of Credit Counselling Singapore, it is one of the most reputable counseling services available. The credit counselors work with non-profitable organizations and act as agents to negotiate lower interest rates for the debts in question.
They also guide you on how best you can pay off the debts, more so for the unsecured debts.
- Creation of a Debt Management Plan.
Upon knowing each other and agreeing on the terms of engagement, the credit counselor will take a step to guide you on an eligible plan to enable you to pay the loan, which can be managed between 3 and 5 years and is fully paid.
The plan will also have the new and lowered interest rates and show any fees waived to enable the debt to save some money and rise from heavy debts’ hardships.
The plan will, however, vary on an individual level, but the credit counselor’s main work is to understand every individual’s needs and help create a plan that best fits them.
It also depend on how much the credit counselor can stretch and work on your behalf to see that you have succeeded.
- Start the Process of Paying off the Debt.
After creating the program on how the debt will be paid, it is time not to start making the payments. It is important to note that, this time, you will not make payments directly to the creditors; instead, the credit counselor will receive the payments.
This is done to enable them to collect their income before final submission to your receiving financial organization.
As mentioned, credit counselors act as agents, financial organizations, and mostly licensed moneylenders in Singapore enjoy this kind of debt payment program because they are assured of getting back their money.
However, it is not a walk in the park for you as a debtor. Much as it would look like a relief, it isn’t since you will still have to repay your entire debt.
This is one of the reasons that you should not celebrate. The bottom line is that without commitment, hard work, and discipline, you might still find yourself going through the same challenges.
Advantages of a Debt Management Program
- Only one payment is made per month-. Contrary to making different payments to different banks, this has made things easy because you will be paying the credit counselor who will do the distribution work to the lending organizations.
- Reasonable Payments-During the preparation of the debt management program, credit counselors go through your income and expenditure and evaluate your ability to apply for a credit card debt, which will be regulated to ensure that the interest rate will be around 8%. Note that most interest rates in such an arrangement drop from 20 and get below the 8% rate and, as such, creates room for saving some money.
- The program comes with an Account Management Software- The software is easy to peruse so that you can review your payments throughout the day. With the fixed timeline, it will be easy to manage the debt within the stipulated period of up to 5 years.
- Impact on Credit Scores– Since most credit cards are closed within the first 6-12 months, this will help to improve the credit scores and enable one to make a strong comeback in the world of borrowing.
- The Stress of Endless Phone Calls is Eliminated- Another critical factor. Whenever one is the default, you get endless calls from the collection agencies. However, dealing with a credit counselor will be a thing of the past and will motivate you to look for money to avoid disappointments.
- They Offer Financial Education- Credit counselors will keep offering advice throughout the loan repayment period, invite you for workshops and give insights on debt management for the loan at hand and even for future borrowings.
Disadvantages of Using a Debt Management Program
- Elimination of Credit Cards– Before signing a contract with a credit counselor, one of the agreements is that you must close all credit cards to avoid any other new debt.
- Fines for Late Payments- If you fail to make the payments in good time, there are chances of c the credit counselors ending the contract pre-maturing. This is a breach of contract.
- It does not apply to all Loans- Only unsecured debt is eligible for this type of plan.
- Takes Long to Repay the Loan Fully- While some debtors are looking for a quick solution, working with a debt management program initiative might not work for you. This is because the plan can take up to 5 years as opposed to those that require quick wins.
Banks and licensed moneylenders find this a good plan and especially when the default rate seems to grow high. However, some small organizations do not vouch for this since they are only building their portfolio base and may not accommodate long tenure.
If your options have ended, do not hesitate to work with a debt management program support since it will give you peace of mind and, simultaneously, enable you to break even to be able to meet other financial obligations.