Debt Relief:Debt Management
Debt Management is the process by which debts are consolidated into one lower monthly payment. This one payment will be an amount which the client can afford, and will be apportioned amongst their creditors. Payments to creditors will be made on the client's behalf.
The following questions were answered during an interview:
1. How will debt management help client's who are in debt?
- Agencies negotiaite and administer monthly payments to each of their client's creditors. This means that a client will only have to make one lower monthly payment, and all their outstanding debts will be repaid from that payment. If their outgoings are currently more than they can afford, or even in excess of their income, this can be rectified. The one monthly payment will be affordable, and will take into account all income and expenses. Agencies also request that interest be frozen, to enable more speedy repayment of the debts. Remember, it is in the interest of everyone that debts are paid off as soon as possible!
2.How does debt consolidation work?
- Most debt consolidation firms are nonprofit community organizations designed to assist clients-- they will take care of all the details, such as calling up creditors and negotiating over the phone. Because they are actually nonprofit organizations, they have more leverage than you do alone in negotiating better interest rates and lowering monthly payments.
3.Will the debt consolidation program affect an individual’s credit record?
- Some CRA's (credit reporting agencies) do make a note on your credit report that your debts have been consolidated; however, most lenders do not see this as a negative because you are attempting to pay your debts. In some cases a creditor will re-age an account. This simply means that your accounts are placed under current status-- this may actually help your credit rating.
4. How much does debt consolidation cost?
- If the organization is an actual nonprofit, the service is free. Your creditors will subsidize all or most of the debt consolidation services. The creditors know that it is better for them to work with you rather than for you to file for bankruptcy. Even thought the payments maybe smaller, they will at least be consistent and are better than receiving nothing. Also, it is worth noting that most of the debt consolidation services are nonprofit organizations. This means that the credit companies get certain tax breaks and can recoup some of the lost interest charges through tax write-of.
5. How long does it take to get relief from debt issues?
- This process will be different for everyone. One cannot speculate as to how each creditor will respond. However, the discharge process on average, takes anywhere from 12-18 months to complete and possibly longer you have any additional summons or credit repair issues.
6. What if the debt is more than two years old; can it still be processed?
- Absolutely! Time is not an issue.
7. Can a person go out and charge up all of their credit cards since they know that they can use this procedure to terminate all off the debt?
- A person must decide for themselves in good conscience what to do in this case. However, charging up debt without intentions of paying can be considered by the courts as intent to commit fraud, which is a crime. Ideally, we would hope that people would use the knowledge learned to become financially free from the debt that already exists rather than accumulate more debt. We do not offer financial advice nor do we support the abuse of this education. All of our education is within 100% scope of the law.
8. Once the credit card has been alleviated, can a person still keep their credit cards?
- Once a person has initiate a dispute or stop paying on an account for whatever reason; it is highly unlikely that the card company will allow them to keep the account open. However a person may keep existing cards, or obtain new cards with any other banks if they so choose. Possibly, the same bank used in the discharge process could offer you another card with them in the future.
9. Are all creditors willing to reduce interest rates?
- Most credit card companies or other creditors have their own debt management programs. However, they will not do this on an individual basis.
10. How does debt consolidation differ from declaring bankruptcy?
- The objective of bankruptcy is to absolve oneself of debts altogether. This financial strategy, however, has serious and long-term drawbacks which may negatively affect your life for decades. For example, applying for life insurance, purchasing a business, buying a home, applying for a job, etc. can all be negatively affected by a prior bankruptcy. Under a debt management plan, you commit to repaying your debt obligations.
11. What do companies usually charge, and how does a person pay for the service?
- You may well be thinking "If I can't afford to pay my debts, I can't afford to pay anybody to sort them out for me". The answer is, you can, because most companies fee becomes part of the amount you pay each month, and the cost of putting together an informal arrangement with your creditors is covered by the first monthly payment.
12. If a person is being called constantly by pushy and aggressive collection agencies can you stop collections agency harassment?
- Yes, if collections agencies are still calling after the first few payments, we may use The Fair Credit Reporting Act, a Federal Law, to make them stop calling. If collection agencies are calling you at work and jeopardizing your job, they may not be in compliance with the law.
13. Can you consolidate things like a home loan mortgage or a car loan?
- Probably not, most companies only work with unsecured debt. Unsecured debt is not backed or underwritten by an asset like a home or car.
14. Given the following scenario, can you say how long it would take you to collect the money that this person owes on just his college loan? How would your company collect from someone like this? How much would he have to pay per month to relieve him of this college loan debt?
- After completing his graduate degree, Joe Smith realized that his financial debt was dire. While in graduate school, Joe took out almost $60,000 worth of student loans. He has a car, which costs $300.00 a month, two credit cards with total balance of $13,000.00. He wants to buy a house and the mortgage would be $700.00 a month. He spends about $300.00 a month on entertainment and about $1,000.00 a month on miscellaneous expenses. He owes just $1000.00 more on his car. Joe’s take home pay is roughly $2,500.00 a month.
Answer: If Joe has a full time job—he would have to pay or be sued and garnished. If Joe works on a commission then all of his wages are subject to garnishment. Some student loans also accrue late fees or better known as interest—he would have to pay a lump sum down (like on the charge cards) or savings , then at least $500 a month for 6 months then when his car is paid off up this payment. Buying a house wouldn’t go at this time as far as I can see. HE OWES MORE THAN HE CAN PAY.