Many consumers may have run into significant financial troubles in the last several years, and are now beginning to get their feet back under them. However, much of the damage from overuse of their credit card accounts and stretching their monthly budgets too thin still remains, and now many Americans may be looking for a way back to a comfortable financial lifestyle.
One of the ways many troubled consumers are doing so is by seeking the help of debt management companies. Often, borrowers with a history of credit troubles come to these agencies after conducting a close review of their finances on their own – taking into account all aspects of their fiscal life including all incomes and monthly expenditures that are unavoidable – before determining that their problems are too big for them to fix on their own.
Luckily, debt management companies employ a number of certified, experienced financial professionals whose goal it is to help troubled consumers sort out their debt problems and get their life back on track. Likely, they will start with a more thorough review of their client’s finances in an effort to better understand their full financial situation before proceeding with any more drastic measures. By working with the borrower to figure out what needs to be done to straighten out their finances, and carefully explaining some of the ins and outs of what landed them in their current situation, they might give their new client a better idea of what needs to be done to dig out from under their mountains of debt.
In some cases, the credit counselor may determine that the consumer can’t be helped even by careful budgeting overseen by a professional. As a consequence, they may recommend a program such as debt consolidation. With this debt solution, the counselor will work to find the consumer a lender that will grant them a sizeable loan, typically one big enough to pay off all their outstanding debts at once. The benefit with this method is that the consumer will essentially reduce the number of outstanding debts they have to one, making it easier to keep track of payments and in some cases lowering the interest rate they pay on the balance. However, this method can also do some damage their credit score if they cancel the accounts they paid off, as it may reduce the length of their credit history, their utilization ratio and the number of different account types in their name. In addition, these loans are typically required to be collateralized.
A more drastic method that will help only those consumers in the deepest holes is debt settlement. With this method, the credit counselor will negotiate with their client’s various lenders to get the amount of their outstanding balances reduced by a significant percentage. However, in return for slashing the amount they’re owed, the lender will almost always demand the remaining funds be paid in one lump sum, which for seriously indebted borrowers can still amount to thousands of dollars. As a consequence, it may take at least several months to save up enough money to pay off these balances