Debtors with excessive debt welcome the opportunity to obtain relief when the opportunity presents itself in the form of debt reduction or debt elimination. However, things are not as simple as debtors would like them to be. If you’re looking for a debt management service, it‘s important to first consider the various types of debt management services and what each has to offer.
1. Debt Management Through Credit Counseling
Some credit counseling agencies are non-profit, while others charge a fee for their services. Reputable credit counseling services inform you of your options. You‘ll likely receive training on how to live within your means, setting up a family budget and avoiding future debt. Depending on your circumstances, your credit counselor could negotiate lower interest rates or even a reduced settlement, but this is not always the case with legitimate credit counseling companies
Once again, depending on your circumstances, you might continue to make your monthly payments directly to your creditors, or you might need to turn over all account information to the agency. In such case, you would make one monthly payment to the credit company. The company in turn sends payments to your creditors. Be suspicious of a credit counseling service that wants to sell you a debt management plan without discussing all your options first. Unscrupulous agencies make money from the sales of debt management programs.
2. Debt Management Through Debt Consolidation
Debt consolidation involves making one monthly payment. You can do this by obtaining one loan at a bank or credit union and paying off all your smaller debts so that you make only one monthly payment to the lending institution.
Another type of debt consolidation, or bill consolidation, involves hiring the services of a debt consolidation service. Some companies might charge an up-front fee. Others deduct a certain percentage from your monthly payment to them
3. Debt Management Through Debt Negotiation
If you choose a debt negotiation company, the associate helping you will attempt to negotiate your rates and possibly a reduced settlement to make your monthly payment more manageable. You’ll likely need to compensate the company for its services, either through an upfront fee or through a percentage of your monthly payment.
4. Debt Management Through Debt Elimination
Be very careful with this type of debt management approach. Debt elimination companies are becoming more popular. They often send unsolicited email messages or might even call you at home. They attract customers by promising to eliminate your debt. They claim that there are loopholes in the system of which consumers are often unaware of. Their claims are generally untrue and incorrect. Following their advice could lead you to deeper financial debt and even litigation. The only ways to eliminate debt is to pay it off or to settle them.
Be very careful with this type of debt management plan. Reportedly, debtors who made regular payments to debt elimination companies for a period of time were disappointed to find out that their creditors had not received any payments. What’s more, you could be incurring additional fees without even knowing it.
5. Debt Management Through Do-it-Yourself Debt Settlement
Debt settlement, or debt forgiveness, involves paying less than what you owe. After about six months of delinquency, creditors often extend settlement offers to debtors. If your debt is older, or has been written off, you can still make a settlement offer. Try to negotiate with the original creditor whenever possible. If a collection agency is handling the account, get the agency’s name and number.
Offer less than what you can pay. Expect the creditor or debt collector to make a counter offer. Once you agree on an amount, request the terms in writing. Once you receive a written agreement, send a money order or cashier’s check by certified mail and check the return receipt box. Save the written agreement, a copy of the certified mail card, and the return-receipt stub.
Wait about 60 days after sending in your settlement payment then check your credit report to make sure that the debt is updated appropriately.
If you have other debts, settle them one at a time. You don’t need a third-party service when you take this approach to debt management.
Overall, each debt management approach offers something different that the others don’t offer. Which one you choose depends on your particular needs. Familiarize yourself with all your options so you can make an informed decision.