Debt Management Company: Can They Really Get You Out of Debt?

Managing your finances can be difficult even in the best of times. The debt-to-income ratio of households in South Africa has increased from 72% in 2017 and 2018 to more than 77% in 2020.

With debt on the rise, there is an increasing number of people interested in using the services of a quality debt management company. On the other hand, some people struggle with their finances without knowing what debt management companies can do.

So, what exactly are the advantages that these monetary management companies can provide? Read on to learn all about what these management companies do and if they can really help you get out of a financial mess!

Debt Management Plans: what do they involve?

You can get into debt quickly, but it can take a long time to pay it off. It is possible to manage it. Several firms provide debt counselling to help those struggling to make their monthly payments. One way to deal with your finances is through a debt management plan. A debt counselling process allows you to manage your loans and let you pay them off at reduced installments at reduced interest rates. So, a debt management plan is an agreement between you and your creditors in which you commit to paying off all your commitments in reduced installments at reduced interest rates. The process is also called debt counselling or debt review process. 

Typically, this solution occurs in either of the following circumstances:

• As your living expenses change, you can only afford to pay a small amount to your creditors each month. 
• Despite your financial difficulties, your creditors can still receive payment, even if it is through reduced repayments. 

Companies that manage debts can assist for a fee. Alternatively, you can negotiate your own payment plan with your creditors, but you will not get protection under the National Credit Act. If you do opt to use a debt review company to manage your finances, loans, and credit cards:

• You will make regular payments to the debt counsellors, Payment Distribution Agent (PDA).
• Your Payment Distribution Agent (PDA) distributes the money among your creditors according to your repayment proposal.
• Once you receive your repayment statement, you'll know who has received what payment and the current balance after distribution.

Debt Management Services Can Simplify Your Financial Situation. 

When you're dealing with multiple creditors at once, managing sufficient payments to credit providers can seem impossible. Every creditor has its own deadlines and calculates minimum payments differently. Keeping track of everything can become impossible in certain instances. A debt management company determines how much you can afford to pay your creditors after paying for all your reasonable living expenses, such as groceries and household expenses. The Payment Distribution company usually pays your creditors on your behalf, keeping track of the amount you have already paid back as well as what you still owe.

An essential benefit of using debt management companies is their ability to help solve any unmanageable financial situation. You can usually simplify all your accounts down to a single overall balance with their assistance.

On top of that, you will only have to make a single reduced repayment each month. Beyond that, you can forget about all your loans, credit cards and clothing accounts and let the National Credit Act imposed system carry you through the long journey to freedom from debt.

A Good Debt Management Program Can Help Your Credit Score

Fundamentally, a credit score is a way for credit providers to measure how likely somebody is to repay their debts. The more accounts you get into and the less you pay back on these accounts, the lower your score gets. It makes sense since future credit providers will examine your history of paying back your accounts on time. 

However, not everybody reaches out to a debt management company to manage their financial problems. The track record of over-indebted consumers working with debt management companies is better than most when tasked with managing their unmanageable financial situation. As a result, there is a good chance that your credit score will not drop as much.

Reaching out to a registered company will show that you are doing everything you can to take care of your obligations.

To take advantage of all the benefits that debt review offers, you must make payments every month without fail. 

You must make monthly payments without fail to secure the benefits of your debt management plan, such as reduced interest rates and renegotiated lower monthly payments.

Taking advantage of these benefits will not be possible if you fail to make your restructured instalment. The debt management plans under the debt review program are for those devoted to financial change and who intend to maintain monthly payments without fail.

What accounts or obligations will I not be able to pay off with a Debt Management Plan?

It is not probable to use a debt review Debt Management Plan to pay off the following. 

• Pay as you earn and regular Income taxes due to the South African Revenue Services. 
• TV License
• Property Taxes
• Electricity accounts
• Maintenance and child support court orders
• Cellphone accounts
• Any legal accounts for which legal action has been initiated against you before you applied for debt review. 

A Decent Debt Management Plan Will Forbid You Taking on More accounts.

Using a debt management company can help, but it will also require you to start making different financial choices. Your new restructured financial will require that you stop taking and applying for any new credit agreements.

If you are used to taking on increased debt all the time, this can require a significant adjustment. However, it is for the sake of your future financial health.

Your Debt Management Ratio Will Take Time to Adjust

Your new restructured financial plan that a debt counsellor will prepare for you will have a beginning and an end. If you follow the debt review process, you will eventually get through to the end of your financial woes.

However, in the meanwhile, you will have to make sure to keep making payments. You'll have to trust the system to get you through tough times.

While progress may seem slow at first, it will eventually pick up speed. If you follow the simple plan that a good debt management service will create for you, your debt management ratio will progressively adjust, your credit score will improve, and you will become debt-free.

Debt Management Services Can Help You Lower Your Interest Rates

Debt-review companies do so much more than simply providing you with sound advice and a simple plan. They can also help make it so that you do not have to pay as much money back to your creditors. They will start by negotiating with all your creditors and finding any way they can to lower your interest rates.

In most cases, they will have remarkable success. The total amount of money you will have to pay each month will not only be simpler, but it will also be smaller.

Debt Management Companies Can Help You Eliminate Extra Fees

On top of that, a good company may be able to negotiate so that you do not have to pay some of the extra fees that often come with financial agreements. Among these fees are late charges and management fees.

One of the primary ways a debt management service can help you reduce the total amount you need to repay is by lowering your interest rates.

Debt Management Can Help You Avoid Bankruptcy

With appropriate debt counselling, you can avoid the prospect of insolvency and sequestration. That can save a sizable portion of your property and your credit score as well. At the same time, if you ever want the ability to declare personal bankruptcy, later, having a debt management plan in place will not interfere with your ability to do so.

In other words, you can avoid insolvency if you want, but you can also use it later if you choose to do so.

Has your Debt Management Company closed?

In the past few years, several debt-review management firms have closed due to noncompliance with rules mandated by the National Credit Act and enforced by the National Credit Regulator. 

If the company you chose to manage your accounts for has closed, we can help. 

Find out how a Debt Management Plan can help you with your financial situation.

If you are thinking about using a debt management plan for dealing with your debts, it is always best to speak to an experienced debt counsellor. The debt counsellor might find that this debt solution is not the best fit for your needs, and they will suggest better alternatives for you to consider.  You might be able to become debt-free sooner than you expected with the help of debt counsellors and debt advisors.

A debt counsellor will:

• ensure confidentiality is guaranteed
• will not judge you in any way or hold your financial situation against you. 
• be able to assess your debts and recommend ways to deal with them that you may not even know exist.
• Always make sure you are comfortable with your decision before the company begins reviewing your debt.

Many over-indebted consumers who receive debt advice from a qualified debt counsellor feel more in control of their finances afterwards.

Your Debt Management Company will assist you with the following to deal with your debt. 

A debt counsellor will tell you exactly who you owe money to, and the total balance owed.

• Organizing your finances is one of the first steps a debt counsellor will take if you find yourself overwhelmed by debt. In consultation with your debt counsellor, you'll learn exactly how much you owe to whom. Your debt management company will keep you informed throughout the debt relief process with a listing of all your debts, including creditors, amounts and due dates.

Your debt counsellor will assist you in mapping out a monthly budget.

• Budgeting helps you see where your money is coming from and where it is going. The debt management company will assist with this process to let you know how much you can afford to pay back monthly and what your monthly restructured instalment will be.

paying off expensive debts first

• The debt counsellor will prioritize your list of debts. Your most expensive debts are dealt with first by credit management companies using complicated systems. You will save a lot of money eventually if you pay off your accounts in the correct order, but you'll find relief in the fact that you are paying for them.
• Debt management firms prioritize resolving those debts whose interest rates are the highest or those that cost you the most.

Restructured instalment

• The ideal situation is to pay a little more than the renegotiated restructured instalment every month - this will reduce your debt faster. Ensure that you make at least the minimum restructured payment each month to prevent your debt from growing.
• The moment you miss your monthly restructured payment, you may have difficulties catching up on your arrears. If you fail to make a payment even for one month, your account will go into default, and your creditors will terminate the debt review process, which can result in severe consequences.

Don't make impulsive or irrational purchases

• As soon as you receive your salary, make your monthly restructured payment for your debts. 
• Prepare a strategy to avoid impulsive spending by understanding what triggers your impulses. Plan how much you will spend on your monthly groceries in advance to ensure you don't end up overspending or get tempted to visit other stores for unnecessary spending.

Enjoy All of the Benefits of a Quality Debt Management Company.

From this article on some of the main benefits of working with a reputable debt-review management company, we hope that you have taken away something helpful. Finding the right company to work with can take some time but doing so is an investment in your future. Our certified counsellor can help you determine if this management plan is appropriate for your situation. The appointment is free, and our counsellors are readily available to discuss your situation online until 8 p.m. every day, Monday until Sunday. 

Feel free to contact us here at any time if you would like to learn more about what a debt management company can do for you or if our debt review process is appropriate for you!

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