While a debt management plan helps a lot in paying off debt faster, it is not the only solution available to get out of debt. As you consider an approach as per your individual needs, it is important to keep an eye on other options available such as the snowball method, debt avalanche, and balance transfer credit card, etc. that could help you out in this situation.
What is a Debt Management Plan?
A debt repayment plan designed and managed by a credit counseling agency is known as a debt management plan. It is a good way to get out of debt if your current credit scores are (bad) not in your favor. In this approach, a credit counseling agency helps you get a lower monthly payment and interest to help you pay off the debt within 3 to 5 years.
5 Alternatives to a Debt Management Plan
Below are some alternatives to a debt management plan you can consider to repay your debt effectively.
Debt Snowball Method
The debt snowball method is one of the best ways to consider when you need to pay off multiple debts. It is an accelerated debt repayment plan where you pay off debts in order of smallest to largest. In simple words, you pay the minimum amount due first and then move towards the larger one. You keep doing this with each of your debts until all of them are paid in full. This method comes in handy when you have poor credit scores but you can pay a little amount towards your debts.
Balance Transfer Credit Card
If there are balances on your multiple credit cards that you need to pay, then getting a balance transfer credit card is a great way to consolidate and pay off credit cards debt. It is a good alternative to a debt management plan because balance transfer cards offer 0% introductory APR for up to 21 months. As a result, you can pay off your debt quickly even without paying a single penny towards the interest rate. This not only helps you pay down debt but save you money as well. However, the ability to move the balance usually depends on the credit limit of a new card. That’s why always choose the right balance transfer credit card with favorable terms and conditions.
Debt Avalanche Method
The debt avalanche method is another good alternative to a debt management plan and works like the debt snowball method. In this debt repayment approach, you need to focus on debt amounts with a higher interest rate instead of focusing on the lowest one. Once a listed debt is paid off successfully, you will focus on the next amount with the highest interest rate. As a result, you can save bucks in terms of paying less money towards interest rate as compared to the snowball method. But you should keep paying towards monthly payments to stay motivated and stick with the repayment program.
Debt Consolidation Loan
The debt consolidation loan is just like getting a balance transfer credit card and moving your current balances to a new card with a lower interest rate. When you apply for a debt consolidation loan, you are able to use that loan to consolidate and pay off more balances effectively. Depending on the financial institute or individual lender and how much you borrow, you could get a loan that is payable from one to seven years or in-between. If your credit score is good, you can enjoy a single-digit interest rate. You can use that loan to pay off your debts or balances and then keep paying towards the loan as a single monthly payment. Before you get a debt consolidation loan, you need to look for a lower interest rate and a monthly payment that fits your monthly budget.
When there is a lot of money to pay off but you cannot, filing for bankruptcy could be the last step you can take to avoid paying the debt. No one wants to take this step but it is also seen as the second chance to get your finances back in a good condition. Chapter 7 bankruptcy is a common type of bankruptcy that gives the trustee rights to sell your assets to repay (cover) the debt. It could be a bad mark on your credit scores for 10 years.