The word debt has a threatening connotation attached to it. Whenever one hears the word debt, it can be surely understood that there is a grave financial problem. Financial crisis often causes debts which keep on multiplying if not checked in time. Debts that arise from nonpayment can become a burden very soon.
Debt arising from secured and unsecured borrowing
In case of default in secured loans there is the chance of losing the asset that has been kept as security in the loan document. But while there is no loss of asset in case of unsecured credit, it can become a far more troubling issue. Usually, agencies that provide unsecured credit to individuals are quite stringent about the repayment. If the borrower is not following the payment schedule or has stopped giving payments altogether. Then these agencies might start harassing the individuals for returning their money. In case of secured loans, the harassment is not so profound because the lending institution has the authority to seize the asset or property after a notification period. For recovering the cost but as unsecured lending has no such option then distressing the client for money is chosen as the path by the company.
The rules governing the acceptance of an applicant seeking debt solutions
In order to get oneself enrolled in a program which is designed for debt management and relief, one should satisfy a few major conditions. These rules which are applicable for selecting a client are mentioned below:
- The person who wishes to enroll for debt relief services should be quite far behind in his/her payments. If there are only two or three defaults in one lonely case, then that person cannot qualify for such a program.
- All types of debts are not covered under the services enlisted by debt relieving agencies. Hence it is important to scroll down the list of debts with which a particular service provider works with. Otherwise, the application is rendered futile.
- The presence of excessive financial strain for the debtor is the most necessary condition. If the monetary situation is not that unstable, then debt relief cannot be sought. Hence the true circumstances with respect to the economic affairs should be measured by taking all income sources and assets together. If the calculated income is extremely low or nil then programs for managing the debt can be used as an option.
The chief reason for evaluating the financial condition of an applicant
The main reason for evaluating the financial status of the applicant by a service provider offering debt organization and settlement is because if the financial issues are not that bad. Then the multiple creditors of the client will not agree to negotiate any kind of deal for lowering the payable amount. If the person is trying to lower the debt by choosing debt relief service but has enough capital resources to make the payments, then it also affects the reputation of the service providing agency who works on behalf of the borrower. Hence the existing condition of the debtor will be thoroughly evaluated before enrollment.
The primary services offered by agencies working for debtors
A service provider who aims at solving the financial problems of debtors usually conducts the following functions:
- Evaluate the status of debts of the borrower.
- Check the total amount that has to be paid with regard to unsecured borrowings.
- Recording the different interest rates levied on different types of credit loans.
- Etching the best strategy for dealing with the debts.
- Communicating the possible solutions available in a particular financial situation with the client in detail.
- Assisting the client in understanding the condition of his/her debts.
- Informing the client about successful negotiations with one or more creditors
- Trying to fix a settlement with the creditors of the client.
- Contacting the creditors more than once in case the lending agency refuses to accept a settlement.
- Enlisting the credit agencies that have refused the settlement and developing suitable plans for the client to deal with the debts from those creditors.
- Solving the queries of the client immediately and keeping an open communication system with the client.
- Ensuring that the client does not fall into debts again.
Debt consolidation and its function
However, when a person cannot opt for settlement then grouping all the debts into a single account seems to be the better alternative. Consolidation of debts and using a loan for paying the debts through debt consolidation method is an option. But one should know about the limitations and benefits of this option before choosing it.
The terms that govern debt consolidation loan has the following features:
- The multiple credits taken by swiping credit cards or other loans are joined together to form a whole. The consolidation will remove the problems related to varying interest rates on different loans. Usually, the interest rate that one has to pay for a consolidated loan is lower than the combined interest rates from different credit companies.
- The debt loan is repaid through multiple installments which are moderately low. This implies that the amount that a person has to pay in a month for different loan payments will become considerably less when one has to pay for a debt consolidation loan.
- The tenure of payment is also extended, and there is a single deadline every month compared to the multiple payment dates for different loans.
Wrapping things up
However, the amount has to be paid in full even if it takes time. There is no bargaining involved in reducing the principal amount from multiple debt sources. The whole payment has to be made, but the need for management of different debt accounts is removed. Therefore, one should know that by consolidation he/she cannot pay less than what is owed and debt consolidation is used just for making the hectic payment schedule manageable.