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Debt Management

In tough economic times, individuals and businesses are more susceptible to financial hardships. They may face a dwindling number of customers, loss of employment and a significant loss in income. Such difficulties can affect your ability to pay for loans and other bills. If you find yourself making consistently late payments or unable to make payments altogether, you may find that obtaining the services of a reputable debt management company to help resolve outstanding debts is the wisest course of action. A legitimate debt management company will work with you to settle your debts by negotiating with your creditors and establishing a payment plan that makes the most sense given your particular situation.

Benefits

The benefits of debt management companies are great. They can help you reduce interest rates, consolidate debt, work out a repayment plan, give you a single monthly payment, and reduce or eliminate late fees. According to the NFCC, people using debt consolidation programs can expect to pay off their debt in 36 to 60 months if payments are made in full and on time.

Consolidate Debt

Debt management companies will help you consolidate debt into a lump sum. This is the first step in creating a lower monthly payment and in helping you achieve a lower interest rate. They also help you pay a little more on your debt each month, so you’ll be out of debt sooner.

Lower Interest Rates

Lower interest rates can help you reduce the actual amount you’ll pay back on your debt. Debt management companies will negotiate with your creditors or collection companies to get you a better interest rate, so you pay less over time.

Repayment Plan

The purpose of a repayment plan is to work out a payment that you can afford to make each month. This can help you pay off the principle balance, which will help you get back on track with your bills.

Single Payment

A single payment plan requires that you make a single payment to the debt management company each month. This payment goes toward your bills or debts. This can help you stay on track, as the debt management company will take care of paying each creditor individually.

Reduced or Eliminated Late Fees

Late fees can comprise a large portion of your debt if you haven’t been able to pay bills for a period of time. When a debt consolidation company works with creditors and collection agencies, it may be able to reduce or eliminate the accrued late fees, penalty costs, and interest. This will help you receive a lower bill that is more affordable.

Pitfalls

Things You Should Know About Debt Repayment Programs Before You Start

While a good debt repayment program offers you several clear benefits, there are a few things you need to keep in mind before you move forward with one.

Not a Quick Fix

Using a credit-counseling or debt-servicing program is not a quick fix to your credit problems, although it is certainly a good first step. The National Foundation for Credit Counseling states that, on average, it takes anywhere from three to six years to repay debt through a reputable debt program.

Debt Consolidation Risks

Some debt programs will consolidate all of your debt under one loan to lower the amount of interest you must pay as well as making the program easier to manage. Consumer Reports cautions that this type of program comes with some associated risk. If your program consolidates a personal loan, car loan, and second mortgage under one loan, and you default on the consolidated loan, you will put your car, home, and credit all at risk instead of dealing with each loan individually.

Frozen Credit

In most cases, lenders and creditors will not extend any additional credit to you until you have completed your debt management program and demonstrated an additional one to two years of on-time payments. This means that it could be four to eight years from when you start on a debt repayment program before you can take on any new credit.

Limited Choices

If you choose not to use a debt management program or default on the payment schedule that has been laid out for you, your only other choice to get out of debt and stop judgments and wage garnishments is to declare bankruptcy. While much of your debt is cleared when you go this route, your credit rating may be severely impacted for a period of up to 10 years.

Pricing

Numerous debt management companies exist to help your business get back on its feet. According to the BBC, the number of debt management companies within the U.K. alone could be as large as 400 competitors or more. Debt management companies are increasing in number as economies become less stable.

The Cost of Debt Management

Debt management is rarely a free service. Some government and non-profit agencies do exist to help you direct your resources without charge, but the aid they provide tends to be minimal. Actual debt management companies usually set a fee, often in the form of a percentage. This fee will vary with each individual business and the level of help that it needs. Debt consultants offer additional insight at the expense of an hourly rate, often as high as several hundred dollars per hour.

Conclusion

There are a number of debt management options that to consider with the help of a debt management company. Its counselors may discuss such options as lowering interest rates to make monthly payments more manageable or setting up a long-term repayment plan to help pay off your total debt. Debt management counselors will consider your current situation and advise you on the best course of action. Business owners and consumers considering a professional debt management company should realize that its services are not always free of cost or risk. Debt management should not be considered a quick fix, as most options usually require at least a few years commitment to get you back on your feet.