When you owe a lot of creditors a lot of money a debt reduction service can be very helpful. They act as a mediator between debtor and creditor and reduce your debt.
The way it works is that you gather all your unsecured debts together and provide that to the debt counselor. They set up an arrangement wherein you make one lump sum payment to them and they in turn distribute that money amongst your creditors. If you have secured loans you would have to refinance those with a debt consolidation loan.
Debt reduction services are often able to negotiate better repayment plans, reduced interest rates and at time a balance reduction. There is one drawback to this. It can be reflected negatively on your credit report and prevent you from receiving credit in the future.
The flip side of the coin is that you may have to declare bankruptcy if you are unable to repay your debts. In that event, you will be considered an even higher risk. It is therefore advisable to weigh both the options and opt for one that carries less risk.
Many debt counselors charge a 10% commission for the service they provide. At times creditors also give them a rebate. In rare cases this rebate is passed on to the debtor.
That is why care should be taken while hiring debt reduction counselors. Several of them are known to use unethical means, and can't be fully trusted. You must especially ensure that they make all payments on time.
Some debt managers have been known to use the deposits they receive from debtors for things other than to make the payment to creditors. This hurts the debtor who is expecting that payments to his creditors are being made on time each month.
There is sometimes unpleasantness when you default on payments or delay payments. It is therefore important to clarify this point before hiring a debt reduction service. In fact, you must employ only that service with which you are comfortable. There is no point in employing a debt reduction counselor with whom you end up feeling more harassed and cheated.
The way it works is that you gather all your unsecured debts together and provide that to the debt counselor. They set up an arrangement wherein you make one lump sum payment to them and they in turn distribute that money amongst your creditors. If you have secured loans you would have to refinance those with a debt consolidation loan.
Debt reduction services are often able to negotiate better repayment plans, reduced interest rates and at time a balance reduction. There is one drawback to this. It can be reflected negatively on your credit report and prevent you from receiving credit in the future.
The flip side of the coin is that you may have to declare bankruptcy if you are unable to repay your debts. In that event, you will be considered an even higher risk. It is therefore advisable to weigh both the options and opt for one that carries less risk.
Many debt counselors charge a 10% commission for the service they provide. At times creditors also give them a rebate. In rare cases this rebate is passed on to the debtor.
That is why care should be taken while hiring debt reduction counselors. Several of them are known to use unethical means, and can't be fully trusted. You must especially ensure that they make all payments on time.
Some debt managers have been known to use the deposits they receive from debtors for things other than to make the payment to creditors. This hurts the debtor who is expecting that payments to his creditors are being made on time each month.
There is sometimes unpleasantness when you default on payments or delay payments. It is therefore important to clarify this point before hiring a debt reduction service. In fact, you must employ only that service with which you are comfortable. There is no point in employing a debt reduction counselor with whom you end up feeling more harassed and cheated.
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