Debt:
Debt is the amount borrowed by a person from a money lender. The borrowers may take loans from the money lenders for any reason, like purchasing a house, land, carrying out construction works for a building, etc. But they must repay the amount, with interest, in a specific time period to the money lender.
Debt management:
Debt Management is a technique for the management of debts. If you perform it effectively, there won’t be any problems. It is crucial because it helps people manage their finances and debts accordingly.
Strategies for effective debt management:
People struggle between their finances and the repayment of their debts. It is because they have no idea about the debt management strategies which would effectively help in debt management. Therefore, mentioned below are debt management strategies to assist people in managing their finances and planning debts accordingly.
- Take the amount of debt that you can repay within a specific time. Don’t go for a debt you can never manage and find difficult to repay it. For example, taking a considerable loan from the bank and then struggling to repay it makes no sense. That is why it is best to take the amount of loan which you can afford to pay back later.
- Keep yourself updated regarding the current and future interest rates for the loans. It is necessary because you won’t suffer while repaying the loan which you have taken before.
- You can plan to repay your debts by cutting unnecessary expenses and paying the EMI(every month in installments).
Importance of Debt Management:
If you have a business of your own and are facing challenges in debt repayment, then the following tips may make it easy for you to pay back the incurred debt.
- It is necessary to contact financial experts who are known to you as they will be able to guide you throughout your financial management and dealings with the business. They will advise you regarding the balance between debt payments and other business expenses. They will even ask you to make payments for debt on time so that you need not suffer at a later stage.
- It is easy to be overloaded with debt. Most businesses often suffer from this problem. If the firms have huge loads of debt, it will be challenging to run the business successfully, and eventually, at a later stage, it goes to a situation of winding up.
Debt Management plan(DMP):
A debt management plan is a simple solution that assists people in repaying their debts at an affordable rate. It is for people who find loan repayment complicated.
An effective debt management plan makes the due payback easier and more convenient. If you have a proper debt management plan regardless of where you stay, then your due payment is more manageable, and also you will be able to get your financial situation in a stable condition.
Reasons to choose a debt management plan:
A debt management plan is there because it helps pay your dues on time. But there are many reasons mentioned below for choosing an effective debt management plan.
- You can pay your dues regularly within a particular time. Your credit report will even show that you have paid your dues on time. You’ll maintain or even improve your credit score by keeping a record of timely payments.
- You can make a single payment for all your dues.
- You can also reduce or remove the interest charges.
- It is a smooth process that helps people with limited income sources search for a debt advisor to resolve their debts.
The consequence of missing a payment:
If you don’t pay your monthly dues or are about to miss the next payment due to your financial difficulties, then the debt, along with interest, becomes more. Additionally, you will suffer severe repercussions. Therefore, getting help at the right time to solve your problem is vital.
Requirements in a debt management plan:
- Initially, you should consult a debt management service provider who will ask you for your financial details.
- These details include your income and expenditure and the current debt amount.
- After that, they check whether you are eligible to repay your debt.
- When you are eligible for debt repayments, you can consult a debt advisor who will give you an effective debt management plan.
Types of debts in a DMP:
Below are the types of debts included in a DMP.
Bank loans:
The offers given by banks to lend money to their customers for a specific time is called bank loan. As a condition issued by the bank based on the bank loan, the borrower should pay a certain amount of interest every month or year. Failure in paying back the amount may lead to severe consequences. For example, suppose a person took a ten-year loan to purchase a house. Then the bank gives an interest rate to that person for repaying the loan. That person being the borrower, should repay the bank loan at an interest rate mentioned by the bank. If the loan isn’t repaid on time, then that person faces serious consequences.
Credit cards:
People use credit cards to purchase the goods and services of their choice. But they must also pay their credit card dues within a particular period. So they have to pay the credit card amount every month depending on the expenditure on their credit cards; if they don’t pay their timely credit card dues, their interest rates increase, which is again not a good financial stance.
Student loan:
A loan used to pay for a student’s education is a student loan. It is to help students pay for their post-secondary education and associated fees like tuition fees, books and supplies, and living expenses. If people take student loans from the banks, then it is their responsibility to make sure that their student loan repayment is made on a timely basis.
Personal loans:
A loan taken for personal use is called a personal loan. Many banks give personal loans to their customers. For example, a person might apply for a loan to renovate a house, for a dream wedding plan, etc. But it is also crucial for the borrowers to repay the personal loans to the banks.
Benefits of a DMP:
Many people can enjoy the benefits of an effective debt management plan.
- You can make a single affordable monthly payment to your money lenders. Additionally, this agreement between you and your creditors will be informal and changed according to your situation.
- With the debt management plan, the interest rates and charges freeze. It provides you time to concentrate on the payback of your dues.
- You will also get the willingness to pay off your debt entirely without any lackings.
- You will also become debt-free if you follow the DMP to the core.
- Your monthly due payments might also decrease.
- You won’t have any stress about paying multiple dues.
- Another significant benefit is that you won’t have to deal with your creditors anymore, once they agree to your debt management plan, the debt provider will deal with your creditors on your behalf.
- If you have unsecured debts, then DMP is the best alternative, as all of your debts can be covered with one monthly payment.
Disadvantages of mismanaged debts:
The disadvantages of mismanaged debts are as follows.
- When you apply for a loan or use your credit card, at that moment, debt arises. You must pay for the dues that you have outstanding. The more you delay the due payment, the more interest will be added to your due amount. As a result, you become overloaded with debt.
- With Monthly debt payments, you won’t have the money to pay for your desired things. For example, if you want to spend the amount on your home renovation and have a home loan to repay, then you won’t be able to spend your money on home renovation.
- Excessive debts can lead to serious medical problems like heart attacks, high blood pressure, diabetes, etc. It happens mainly in the case of huge debts. For example, if you have a heavy load and you are facing difficulties in repaying the loan, then there are chances that you may have a heart attack or high blood pressure.
- You won’t even have a remarkable personal life if you have a huge debt to repay. For example, if you have aged parents to look after and have to repay a massive debt to the bank, you’ll have a tough time managing your parents’ medical expenses and bank loan repayments. Also, you won’t even have the chance to have a happy life with your parents.
Conclusion:
Debt management is a part of life, and people with debts to pay should have a debt management plan that helps them to repay their dues successfully. They should also be aware of the requirements of the debt management plan. With this, people’s health will not be compromised due to their poor finances as they will appropriately manage their debts, and interest on their due amount will also lessen. One should also remember to make timely payments on their loan; otherwise, the consequences will be severe.
