How Do Debt Relief Programs Work
Debt relief programs come in two types: bankruptcy filing which may have a detrimental effect on a person’s ability to secure a loan in the future, or debt settlement in which he will pay his creditors in a payment mode that he is capable to meet.
With unemployment rate still high in the country, debt relief programs are increasingly becoming a popular option for people who are filing for bankruptcy or resorting to debt settlement.
Such services may be provided by legal experts (or lawyers), government agencies, nonprofit organizations, and bankruptcy petition preparers.
Most credit councilors would rather suggest debt settlement over bankruptcy filing which usually has a negative effect to a person’s credit worthiness, making it hard, if not impossible to secure loans in the future.
Meanwhile, debt relief programs usually involve counseling that would help consumers decide on how to pay their debts in a way that is possible in terms of their capability. In most cases, experts suggest that people should first settle the debt which has the highest interest rate to prevent it from getting bigger.
Aside from counseling, organizations that provide debt relief programs also act as a negotiating entity on behalf of its client. They will have to negotiate with the creditors and convince the latter to agree to a payment mode that is bearable for the debtors.
In many instances, a customized consolidated payment plan will allow a debtor to pay his credit card debt in three to five years or depending on its amount or his ability to pay. (Every month, he must write a check and give this to his credit counselor who in turn will use this to pay his creditors.)
A good credit counselor should at least spend 20 to 30 minutes listening to his clients. In this way, he can have a good picture of the financial problem, thus allowing him to create a debt relief plan that would satisfy a debtor and be amenable for a creditor.
Because of the increasing number of fraudsters posing as debt relief agencies, the Consumer Federation of America warns consumers that they should not pay more than $50 for the set-up fee and no more than $25 for monthly maintenance fee.