With debt almost becoming a part of our lives, most of us need debt reduction help to deal with the financial obligations and move towards a debt-free life. The most common debt reduction solutions are debt consolidation, debt management and debt settlement. You can reduce your debt either by taking some steps on your own, or by taking help of counselors and professionals.
The first step is to realize that there is a problem and you need debt reduction help. Once you realize, you must try doing something about it on your own. You can start by evaluating your debts. Get your credit reports and financial documents to judge your financial standing.
Next you need to chart out a plan for making monthly payments in order to repay your debt. For this you need to calculate your necessary expenses and cut down wherever possible, so that you can use the amount saved to repay your debts. You can also contact your creditors and lenders to negotiate the terms of repayment i.e. the interest rate and the payments. You can also move some of your credit card debts to new accounts with lower interest rates in order to save on interest.
It is the best debt reduction method to take initiatives on your own and avoid the extra expenses you would incur when taking help of professionals. However, it is essential to approach a company or professional providing debt reduction help if you find that your debts are overwhelming when you evaluate your debts. These companies will help you reduce your debts and avoid bankruptcy. They will help you establish a new budget to manage your finances, and will work with your creditors for debt settlement.
The first step would be credit counseling. Credit counselor will study your financial status and suggest an appropriate action that should be taken. Counselor will also help in debt negotiation and establishing a debt management plan.
Debt consolidation involves converting your several small debts or loans into one larger loan. While your payment term is extended, the interest rates and the payments are reduced. You will pay a specified amount to the debt reduction company, who in turn will make the payments to all your creditors. Thus, your burden of making payments to different creditors is reduced.
In a debt management plan, a third party helps the debtor to repay his/her unsecured debts. The agency will contact all your creditors and plan out a payment schedule that might reduce interests and monthly payments or waive off late fee. Also, when a counselor calls your creditors, they become aware of your acute financial crisis. They will thus compromise, as they will prefer to regain some amount of money, than losing all.
A debt reduction company can also provide you legal assistance by making you aware of your legal rights or file a case against threatening or harassing creditors.
Thus, we see that taking debt reduction help from a financial agency or credit counseling agency has several advantages. However, it also has many disadvantages. The agency will charge some fee for the services provided. You should be aware of the fee they charge, and know what the entire fee covers.
You need to be extremely vigilant while availing services of a credit counseling agency. All the verbal commitments should be written down to avoid future problems. You must ensure that the agency has the license to work in your city, and that it doesn’t charge an exorbitant fee. You also need to make sure that the company takes care of the security of your personal information. Moreover, you will have to stay in touch with your creditors in order to make sure that the plan that has been chalked out suits them, and that they are receiving timely payments. You must know that any delay in payments can ruin the progress of your debt management plan.
Government also provides some debt reduction help in the form of grants and debt relief programs.
For further information, you can refer to: https://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre19.shtm