Facts Of Debt Reduction Programs

By Sean A. Kelly

America’s consumer’s debts are on the rise. The ever-growing number of credit card users is one of many reasons more and more people are in need of some form of debt help. It is also one of the reasons that debt reduction companies are also growing like mushrooms after the rain. These companies are set up to assist people in debt in the attempt to reduce the amount of their debt before it is too late. They often have a working relationship with a lot of creditors. By creating a level of mutual trust, these companies possess the ability to negotiate reducing the debts of their clients with related creditors.

These companies not only assist in reducing existing debts by negotiating with creditors but also provide hands-on advice and counseling for their clients to develop a financially savvier and healthier lifestyle to avoid incurring future debts. Under the watchful eyes of the Consumer Federation of America, debt reduction companies do have the ability to negotiate a reduction of up to 50%. There are several companies who boast of their ability to wrangle a reduction of up to 75%. It is advisable that consumers do not be easily fooled by these promises of miracles and stick to more logically sound solutions rather than expecting a quick escape from their debts.

Sometimes the process is also known as debt settlement or debt negotiation. Whatever it is called, it is your right to ask the question, ‘Will this program help me with debt reduction?’ In order to fully understand what goes on between your advisor and your creditor, you will need to know the entire process from start to end. The process is as follows:

— Advice and counseling

This is the very initial stage where you will be meeting with your debt counselor or advisor to study the extent of your financial troubles. When in discussion with your counselor, you will need to divulge the entire truth and nothing but the truth and come clean about everything to allow your counselor to get a very clear picture of your situation. All records are analyzed and there will be a lot of questioning and investigating. Once the problem is identified, your counselor will come up with several advice and options for you to take on in order to be in charge of your own debts and also to avoid incurring future debts.

— Budgeting

Based on your income and expenses ratio, you and your counselor will work together to come up with a budget that is both realistic and objective. The budget is planned for you to set aside a certain amount of money every month in order to start making payments on your outstanding debts once the negotiations take place. Based on the budget, your counselor will then draw up a timeline that will determine the time it will take for your monthly savings to amount to the figure that your counselor will be negotiating.

— Setting up an account

Instead of making monthly payments to your creditors, the money you are to set aside every month will be deposited into an account and the money will be left there to accumulate until there is enough balance to initiate a negotiation with your creditors. You are not to withdraw the money under any circumstances.

— Negotiation with creditors

You can do the negotiating yourself if you wish but it will definitely be under the guidance of your counselor. You could also let your counselor negotiate on your behalf. It is during this time that your counselor will request that your creditors allow you to reduce your amount of debt by up to 60 or 70%. It is quite difficult to get a creditor to agree to reduce such a significant amount of debt. Typically you will be more successful towards getting the debt reduced to up to 50%.

— Settlement

Remember the money you’ve been setting aside for the past few years? When an agreeable figure has been mutually agreed upon, your creditor will request for your approval before finalizing the lump sum settlement amount. If you agree, you will then have to pay your creditor the agreed amount by using the money you have in your special account. The amount of money you pay will usually be less than what you originally owe.

Debt negotiations are not always the best solution for different kinds of debt. Normally this method is suitable for credit card debt reduction, bill debt reduction and even student loan reduction, provided that the student loan is not insured by the local government. So whatever your financial issue is, you need to make sure if debt reduction is the right path for you to take.

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