No one wants to be in a situation wherein they are dealing with mounting debt. However, it happens more often than it should because it is quite easy to fall under the debt trap of borrowing more than what you can actually pay for. Once you get into the habit of swiping that piece of plastic, it might be difficult for you to monitor your spending.
Now, let us say that you have already committed the sin of borrowing more than what you can afford. Once you see that you are allotting more than 20% of your pay check to credit card debts, it means that you are quite neck-deep in debt. If you are unable to pay even the minimum amount against your credit card bills, it could be time for you to consider hiring a debt company to consolidate or manage your debts in your behalf.
What A Debt Company Can Offer You
Depending on how much you earn and how much you owe, there are debt companies which offer different services which may just solve your financial problems. To give you an idea, here is a quick list of the services that debt companies offer:
Debt Consolidation Loans
There are debt companies which specialize in debt consolidation through lending you more money. Let us say that you owe debts to four different credit card companies. A debt consolidation loan company will offer you a loan which will allow you to pay off your existing debts, so that you will only owe one company. Does not really get rid of your debts and you often end up paying more in the long run.
Debt Management Plans
This is probably the most desirable option out of all these when you have more than one lender reminding you to pay off your debts. A debt management plan is something that debt management companies will set up for you. Once you hire their services, they will be assessing your current financial situation so that a solution to the financial mess that you are in can be found. Usually, the representative from the debt management company will negotiate with your different lenders so that a lower monthly payment and lower interest rate can be given to you. You make one payment each month and it is shared about among your creditors.
Debt settlement companies specialize in taking care of your credit card debts, which is an alternative to filing for bankruptcy. This is only an option in the US.
Individual Voluntary Arrangements
These are only available in the UK and they are a way of writing off a lot of your debts. You make an affordable payment for five years and after that you are free of debt.
Beware of any companies which promise to repair or fix your low credit score. If you have more debt than you can handle which affected your credit score as well as your purchasing power, remember that the process to rebuilding credit is quite slow. No-one has the power to change this and anyone promising to is lying and should be avoided.
How To Find A Reputable Debt Company
If you decide to approach a debt management company, you need to take care to only talk to honest and reliable organisations. Check to see they are properly licensed and regulated and ideally follow recommendations. You can apply to more than one before deciding whether to accept any proposal made.
For debt consolidation, look for the right bank or lender, who might be able to negotiate lower monthly payments and better interest rates for you. No matter which debt company it is that you end up hiring, what is important is to check on their references, specialization, number of years in the business and the specifics regarding the deal that they are offering.
Do I Have To Pay A Debt Company?
All debt management companies have to charge for their services, so make sure that you are aware of the costs involved before you sign anything. Be it debt consolidation loans, debt management or debt settlement, there are costs involved because you will be taking advantage of the services that they offer.
Take debt management plans as an example. Typically, the first month’s payment that you will make will go towards the debt management company instead of the lenders who you owe money to. This is perfectly fine, as long as the company was able to negotiate better rates and lower monthly payments for you. At the end of the day, information is your best ally when handling debts with two or more credit card companies.
By being aware of what your options are as well as the pros and cons of each one, you can come up with a well-devised plan that will get you out of the financial rut that you are in and slowly but surely pay off your debts.