Finances & Money

What Debt Relief Companies Do for Consumers

Consumer credit rose 7.7 percent during the fourth quarter of 2017. Revolving credit—like credit card debt which is meant to be paid off each month—was up nearly 10 percent during the same time period. This put national consumer debt somewhere around $3.8 trillion.

What do these statistics say about the financial lives of U.S. adults? It says that debt is all around us. People find themselves having to take out loans for big expenditures: homes, vehicles and higher education, to name a few. People regularly make purchases on credit cards, often to redeem rewards or defer payments until a later date. And, of course, medical and financial emergencies are always waiting in the wings, requiring consumers to rack up even more debt just to survive.

It’s no wonder that many American consumers are looking for a solution to their growing debt. After all, getting calls from credit collectors can be downright anxiety-inducing. And, while you’re dealing with one batch of debt, it doesn’t mean you’re spending drops down to zero. Understandably, many people simply don’t have enough income to pay down debts on their own.

This is why debt relief companies sound like, well, a relief after the struggle of trying to deal with outstanding balances on your own. What do debt relief companies do for customers? It’s worth exploring.

Consult with Consumers

People’s first contact with debt relief organizations is usually a short phone call. During this exchange, a certified debt consultant will help you determine the best course of action based on your specific circumstances. It’s important to make sure you’re talking to a certified professional at this step, as their advice can influence your future course of action.

Negotiate with Creditors

Consumers can negotiate with creditors on their own. But it’s easy to make a costly mistake if you have no experience in this arena, including:

  • Not knowing enough about the nature of your debt
  • Taking on risk by using equity or retirement funds to repay debts
  • Settling for a number not much lower than your original principal

One of the services a debt relief company provides is handling negotiations using a team of trained professionals. The end goal is to earn the debtor the largest discount possible, whether that’s through a reduced lump-sum payment or reduced interest rates over time. These experienced negotiators may have insights and leverages that the average person lacks, which tends to relieve some of the pressure from the consumer.

Once a negotiation expert reaches a settlement with a given creditor, they reach out to consumers for authorization to proceed.

Streamline the Payment Process

Half the battle of resolving debt is figuring out what you owe to whom by when. The debt settlement process addresses this by having consumers pay into a FDIC-insured bank account each month. This way, by the time negotiations have concluded, you have a growing sum to use in paying back creditors for the newly agreed-upon amount.

Again, payment strategies may include long-term repayment with lower interest rates or a lump sum that’s a percentage of the original amount owed.

Notify Credit Ratings Bureaus

Lastly, it’s not up to the debt relief program to report the status of the debt to the credit bureaus. But creditors may report the debt as settled once the balance reaches zero. For consumers with multiple debts, this process may be ongoing.

Upon concluding the debt settlement process, it’s up to cardholders to develop a system for spending responsibly, paying off debts in a timely manner and rebuilding their credit. Fortunately, it’s much easier to take charge of your finances with a balance of zero rather than a mountain of debt.

About the author

Susan Paige

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