Getting into debt is very easy for
people and doesn’t require any effort; you simply rack up your credit
card bill and not pay it on time or you take out a loan and pay interest
on it. The actual difficult task is to get out of debt, which becomes
next to impossible for people when they have a fixed income and also
have to pay interest.
In this case, there are various debt relief programs
that can be used as they are primarily designed for helping people who
feel as if they are drowning in debt. When people are in a position
where they have to pay a large amount of debt, they find promises made
by debt management and relief companies very attractive. However, they
can be scams so people have to be wary of them.
Many companies in the market that are
established for aiding people with their debt woes offer debt settlement
programs as their main option. In this particular program, the company
will negotiate with an individual’s creditor on their behalf.
They negotiate with the creditors and
get them to accept an amount that’s less than the total sum if a lump
sum payment is made. Then, the client of the company is required to give
them the said lump sum amount and they will deal with the payment to
the creditor. A percentage of the money will be kept by the company and
the rest will go to the creditors.
There are also credit counseling
companies, which can aid people in reducing their debt through a debt
management plan. In this plan, again people give credit counseling
companies the responsibility of negotiating with their creditors for
reducing the interest rate that has to be paid on the debt.
This is relatively a slow method of debt relief.
Monthly payments are set up by the individual, which are sent to the
credit counseling service. Then, the appropriate amount of money will be
sent by the credit counseling company to each respective creditor. A
fee is taken by the company from each payment in return of providing
this service. It will take individuals several years to pay off their
debt with this type of plan.
When people are signing up with any
company for relieving their debt, they should consider the impact it
will have on their credit score. There will be a negative impact on your
credit report if you use a debt settlement plan. This is due to the
fact that settling the debt means that you are actually breaking off
your original agreement with the creditor.
This will be reported by the creditor
and will eventually lower your score. As far as a debt management plan
is concerned, there will be no ill effects to be seen on your credit
rating. However, while you are enrolled in this program, you will not be
allowed to take any additional credit.
Furthermore, individuals also need to exercise caution because there are a lot of companies out there that promise debt relief,
but are nothing more than scams. They will charge upfront fees and will
not fulfill the claims they have made. Therefore, when people are
signing up with a company, they should ensure that it is legitimate and
has a good reputation in the market rather than a negative one.
