The term “Debt Repayment Plan” can refer to a personal pay off program that you may opt for to clear out your unpaid debit from your bank account. Instead of this, you can enroll in debt management plans to deposit a few types of debt in the most reliable way. The debt repayment plan is often called a debt management plan.
The ultimate goal of these plans is to make your account debt-free and avoid bankruptcy to maintain a good credit score in your account. Once you have provided your extra money to one debt at a time, you will speed up the debt repayment procedure.
How can you Arrange a Debt Repayment Plan?
When you plan to get out of debt, then at first, you need to make a plan and follow a few tips as well. Look at the section below and know the tips to set up the best debt repayment plan for you.
Make a List of your Debts
The very first thing you should do is make a list of all your debts. Here, you have to include the least payment amount, the total amount you owe as well as the interest rates.
Also, include the debt from your credit cards, student loans, personal loans and also mortgage. In case you ever borrow money from your family or friends, then it should be included in your list.
Rank your Debts
After that, you have to rank your debts if you pay them off. Some professionals suggest going from the smallest to largest since this helps get the momentum going where others suggest from highest to lowest. Choosing this order depends completely upon you and the time within which you need to pay off the debts.
Seek Extra Money for Paying the Debts
Now, it’s time to choose the amount of money you have in a month to pay for your debt. Else, you can do part-time jobs to boost your earning power.
As well as you can sell your assets to clear the due debt. Stick to a monthly budget and it will surely help you to save extra money to eliminate your debt.
Concentrate one Debt at a Time
You have to concentrate on paying off the first debt in order to get successful with your debt repayment plan. Spend all the money to clear the first debt from your list.
Move to the Next Debt
After paying off the first debt, now, it’s time to concentrate on your next debt. Remember that once you first start clearing your debt, it appears like it will take more days to pay off your next debt. But once your work is done, it has become easier for you to pay off this one quickly.
Boost your Savings
When you have cleared all your unpaid debts, it’s time to focus on your savings account to deposit extra money in it. It will help you to sink in debt in the future. Whenever you want to use your credit cards in the future, use them responsibly instead of misusing it.
Various Debt Repayment Plans for Different Debts:
You can apply debt repayment plans to any debt that you owe, however, do not involve any unsecured or collateral debt. You may require multiple repayment plans depending upon your type of debt.
Credit Card Debt
In credit card debt, you can make a debt repayment plan on your own. Apart from this, you can go to a credit counseling agency to choose the correct plan for you.
Federal Student Loans
In spite of the credit card debt, there is another option, i.e federal student loan that can help you to accomplish different goals. These plans help you to pay off the due debts instantly to reduce the interest charges. In addition to this, these plans will help you pay less monthly payments that fit your budget.
When you owe back taxes, you can also set up an IA or Installments Agreement to pay that amount back. This plan includes one year to many years of taxes.
Want to Make a Debt Repayment Plan for your Credit Card Debt? Know-How
While you have to pay high-interest rate credit card debt, you can try out this debt repayment plan to do so. In this plan, you have to adjust your debt and then work with the creditors.
So that you can find the best way to reach zero balance on your account. This plan is sometimes called a debt reduction plan as well. Let’s start discussing the processes to do so.
- The first and foremost thing that you have to do is to know where you are standing presently.
- Then, note down all the debts you owe such as APR, the creditor and the balance present in your bank account.
- After that, start calling each and every creditor for negotiation. In that case, you should remember two basic things such as you have to decrease the interest rate that is applied to your debt and check if your creditors agree to adjust the repayment to your budget or not.
- After a conversation with the creditors, you should concentrate on your debts for repayment. Follow a repayment plan that is most suitable for you.
- Next, you need to pay off the debts that the creditors did not negotiate.
- Remember to keep up the minimum balance in your bank account until you clear all debts. Moreover, it will help you in relieving from extra penalties in the future.
Negotiation can vary from person to person. In case you are a long-time trusted customer and you pay your bill on time, then negotiation can be done easily.
Additionally, if you have a good credit score, then also there is a chance of getting negotiations easily. But if you have missed payments more than three times, then getting negotiations can be quite difficult for you.
Contact a Professional
If you are unable to work with your creditors, then seeking professional help can be the right decision for you. Through the Credit Counseling Agency, you can set up a debt management plan for you.
Opt for a certified credit counselor and they will help you to find a consolidated payment that suits your budget. After that, they will contact each and every creditor for a negotiation. These agencies will create a relationship between you and your creditors to get rid of the unpaid debt.
Federal Student Loan Repayment Plans
If you are a student and planning for a student loan, then the federal student loan is one of the best choices for you. To clear the private loans, the federal student loan can help you to pay off debts.
There are mainly seven different types of plans that you may choose. These are:
- Income contingent
- Pay as you ear
- Income sensitive
- Revised pay as you earn
The Graduated and the Standard loans help you to clear your debt fastly and decrease the interest charges. But the remaining five plans are hardship-based programs that help to lower your monthly payments.
All federal student loan plans extend the term of repayment to twenty years or more depending upon your preferences. Whenever you opt for a plan, it automatically enrolls you in a standard plan.
But if you choose a hardship program, then you have to provide your income proof and your family members’ number to qualify for a loan. These plans are often called Extended Repayment Plans.
Tax debt is any taxes that individuals owe to the IRS once he or she filled the deadline. From an IRS website, you can set up these plans. Whenever you owe more than £7000 or your tax debt is complicated, then hiring a tax specialist is the best option for you.
Advantages of Debt Repayment Plans:
A debt management plan is a type of debt repayment plan that is managed by the credit counseling agency.
Choosing a debt management plan is the correct choice for the people who want to manage their due debts. Here, we will discuss some of them shortly in the next segment.
Reduce Monthly Payments
Once you select the correct debt repayment plan, you will decrease the amount that you are paying towards any due debt on a monthly basis.
This allows you to either free up funds for your living expenses or pay off debt quicker by increasing the monthly amount. As a result, you will get rid of the due debt and don’t allow you to take further credit.
Comfort from Creditor Harassment
When you choose the correct debt repayment plan, you can expect that you will not receive too many calls from the creditor. As well as they will no longer disturb you by calling or sending SMS on your personal number.
Avoid Family Insolvency
Debt repayment plans are known as informal debt solutions that mean they are not legally binding but flexible too. In addition to this, the information that you have provided to the debt experts will not be recorded in the public insolvency register.
As debt repayment plans include lower interest rates, it reduces the time to pay off considerably. Moreover, it helps people to repay due to debts faster and in an affordable manner.
Disadvantages of Debt Repayment Plans:
In spite of the advantages, there are a few disadvantages that include:
- You should repay the debts in full. They will not be written off anyway.
- Even if your creditors need to enter a DMP, they will still harass you by calling and ask you to clear your unpaid debt immediately.
- Any secure debt or mortgage is not covered by a debt repayment plan.
Differences Between Consolidation and Repayment:
When you have started searching regarding debt relief, you might come across debt consolidation. It may sound alike as both are similar to the debt repayment plans. Both of them will allow you to pay off debts that you owe with a single payment.
With debt consolidation, you mainly owe a new lender or a creditor. When you use debt consolidation for paying off your credit card debts, you no longer incur your creditors.
But when you enroll in a repayment plan, you owe your original creditors.