Almost every consumer is aware that there is a lot of catching up to do when you are in the debt tangle. Professional help comes in the form of debt reduction companies, which are specialists in finance handling and debt management.
It is common knowledge that when an individual turns up to debt reduction companies, it is about time that s/he starts to look out for skilled and professional guidance to work his/her way out of the debt trap. And that is what a debt reduction company aims at – setting up their clients to being debt-free without filing for bankruptcy.
Debt reduction programs
Debt reduction companies employ financial specialists that counsel debtors on finance handling and debt management skills. These companies assess a debtor’s financial condition and debts; and come up with a debt reduction plan and money-handling strategies. Different programs involve varying strategies that depend on a debtor’s circumstances and conditions. Under quite a few programs, debt reduction companies also negotiate with their client’s creditors to the advantage of the debtor.
The payment plan
Once you approach a debt reduction agency and provide them all the required information, the counselors start off with preparing a payment plan. They contact your creditors one by one, and negotiate on lowering the interest rates, or late fees and charges, or even the debt amount. The aim is to prepare a payback plan that is reasonable enough to be accommodated by a debtor. When negotiations with each of your creditors have taken place, a final repayment plan is drawn up.
Follow the plan
The payment plan proposes payments in different ratios to the creditors. There are two ways of dispersing payments to the creditors. Under the monthly payment method, the debtor makes a consolidated payment to the debt reduction company. The company then forwards this payment to the creditors according to the break up specified in the plan.
The other method requires debt reduction companies to act as depository reservoirs for their clients. The debtor makes monthly payments to the company over a period of time. These payments are stocked up by the debt reduction company over a period of time and handed over to the creditors once the required sum is collected. This is generally used for debt settlement.
Debt reduction companies charge their debtors either on a monthly basis or they charge a commission on the debts settled. The charges and their structure is laid down and officially documented before a debtor signs up with a debt reduction company. It is imperative to read the terms of the agreement carefully and sort out any clauses that may point out hidden fees, charges etc.
There are quite a few benefits that a debtor enjoys while associating with a debt reduction company:
- Signing up with a debt reduction company helps you save money as these companies deploy efficient finance management techniques along with negotiations with creditors.
- Prevents filing for bankruptcy.
- You don’t have to deal with creditors and debt collectors if you have hired a debt reduction company. The creditors and debt collectors are legally obliged to deal with a debt reduction company to pursue the debt.
- The association with a debt reduction company does not go down very well with lenders/creditors; and an individual may have to work that extra bit to get a loan or credit in the future.
- Credit report may just be out of favor for the debtor due to his/her association with a professional debt reduction company.
- Debt reduction agencies cater to non-secure debts only.
Debt reduction companies are quite useful in bailing debtors out of debts. However, with the access they have to an individual’s financial portfolio, it is crucial to run a background and credential check on the debt reduction company. Do not fall for cheesy and lucrative adverts; make sure that their credibility is effectively verified.