People unable to manage their liabilities, loan payments and other financial problems can apply for specific relief and bailout packages based on their financial situation. One of the debt relief options is setting up a debt management plan (DMP) with your creditor. It is an informal agreement between you and your creditor that helps you get your financial situation back in a stable state.
What makes the DMP work so effectively?
In order to fully understand how the system works, we have to grasp some basic concepts of money management.
- The Debt Management System is designed to help people function financially at their optimal best. No financial system in the world wishes for valuable consumers to go bankrupt or reach a state of financial distress where they are unable to live a proper life. Always remember, no bank, lender or financial institute wishes for its consumers to go bankrupt.
- People run the risk of being bankrupt when their inward cash flows turn negative. Cash flows can easily become negative when your current liabilities are more than your current assets. In case of current assets, it is also important to note the value of liquid assets that you have. In case you have assets that can be liquidated with ease, your cash flow can remain positive for a longer duration.
- Loans accumulate over time with compound interest. Long term loans where you have to pay monthly installments can become more difficult to pay back if you miss your installments. For the case of most consumers, if they miss their installments, the interest rates increase and paying back those loans become harder. As the compounding increases, it becomes even harder to pay it back making the financial situation of the individuals extremely volatile.
Now that we have understood that financial institutions wish to prevent people from going bankrupt, we move to the next step where we go into detail about the services that the Debt Management System has to offer to the consumers.
- Education and Training: Getting the right financial advice is priceless however not all people have access to financial information. Often most consumers make decisions with either limited information or unauthentic information. Debt Management System (DMS) provides consumers with the right guidance and training making it easier for people to carry on difficult decisions.
- Financial Budget preparation: The experts at DMS provide complete budget planning for individual customers. This involves rigorous and comprehensive financial exercises resulting in financial statements for individuals which can rival mega corporations. The end point of these statements is that the negative balance is identified. Negative balance is the difference between your earnings and expenses and is carried out after making comprehensive calculations on all your primary monthly expenses. These include credit card payments, student loan payments and all other expenses that you accrue every month.
- The Approval: This “delta”, the difference between earning and spending is then used to create a relief plan for each consumer. Once the relief plan is generated, it is conveyed to all the creditors and formal agreement is reached upon. The DMS continues to work until all the liabilities are paid.
Benefits of a DMP
Apart from living a higher quality of life and getting a major financial tension taken away, the DMP also offers
- Decreased interest rates for outstanding credit card payments
- Decreased monthly installments and payments
- Removal of late fees and fines from various payments
- The termination of collection related actions and activities that could harm your potential goodwill.