announcement

Give investment tips and advice.

Debt Management Companies

Debt Management Companies

Debt management companies providing services to people who have debt problems are gaining importance due to the growing prevalence of the use of credit facilities. Many companies provide excellent debt management programs, services, and effective credit counseling.
Scholasticus K
A debt management company is a consultancy service that helps individuals and organizations to manage their debt and the credit facilities that they have used or have been using. Any kind of money that is owed by a person or organization to any of the creditors is known as a debt. At times, it so happens that individuals and organizations tend to borrow many debts and use a lot of credit facilities. The interest on these debts, coupled with the principal amount of the debts, sum up to one big total.
What is Debt Management
As mentioned above, people tend to use a lot of credit facilities, such as credit cards, loans and on-line shopping facilities. In most of the cases, the individual and business organizations end up borrowing a credit, which they are unable to repay to the creditors. Here is where a debt management company steps in to help out individuals and organizations so that they can repay their debts systematically and also improve their credit ratings or credit scores.
Problems Related to Credit Facilities
Most of the time, we tend to assume that credit creation which enables the person to borrow credit and money, is a very good facility. However, we never realize that if not used properly and efficiently, the facility can turn out to be a curse in disguise. The following are some of the problems that arise if one is careless about the repayment of debts
  • Over Borrowing: One of the biggest drawbacks of availing personal credit, is the human tendency to over-use credit facilities like credit cards. In some cases, the credit cards are used to such an extent that the users find it extremely difficult to repay the loan.
  • Running Interest: The interest rate on debts, keeps on running till the total amount of debt is not repaid. The growing rate of interest often makes the cost of credit very high. If the borrower is not able to repay the creditor within a stipulated time, then the total amount of credit that is to be repaid becomes huge and exorbitant.
  • Service Fees: Many of the service fees that are included in the debt are exorbitant and just like rates of interest, they go on building up with every passing month.
  • Credit Score and Credit Ratings: A single late payment leaves a blemish on the credit report and tends to tarnish one's credit score.
List of Creditors
The following is a list of probable creditors that one might become in debt to:
  • Credit Card Companies
  • Banks
  • Lending Institutes and Companies
  • Miscellaneous Creditors
Debt Management Companies and Why do we Need them
From the points that have been stated above, you will understand that being in debt with no concrete plans of repayment is definitely not a very good situation to be in. The first and the foremost drawback of having a large number of debts is that the interest keeps on building up, thus increasing the amount of your debt. The second drawback is that a large amount of debt tends to negate your credit rating. Thirdly, most of the late payments, accumulated interests and late charges and fines are recorded on your credit report. These recorded late payments deface the credit report. Due to all these factors, one ends up paying a lot of extra charges and interest. Also, the bad credit ratings hamper your borrowing capacity. Hence, in order to have a set of speedy, well-planned repayments, availing the service of a debt management company can prove to a wise decision.
Working of a Debt Management Company
These are basically consultancy companies that provide debt relief solutions and debt relief programs to consumers, individuals, and large-sized organizations with a considerably small fee. The following are some of the services included in debt management programs.
Pro-rata Ratio Calculations
The basic intention of the programs that are provided by the best debt management services is to manage the repayment, interest and fees of all the different creditors of individuals, organizations, and clientage in general.
Creditor Cost of Credit Effect of Late Payment
Credit Bard Companies Monthly service charge Increase in interest/more service charge levied/negative effect on credit rating
Loans (auto/ home) Interest Increase in interest/ larger installments/ bad effect on credit rating
Loans (Personal) Interest Increased service charge and Interest
Miscellaneous Creditors (applicable for organizations) Interest and Service Charge Negative effect on credit ratings
Unpaid Investments Further payments Forfeiture of investments

In the table, you can easily make out all the elements that are considered while calculating pro-rata ratios. Basically, the pro-rata ratio is a list of debt ratios and proportions in which, an in debt person has to repay all of his/her debts in order to become totally debt free in the shortest possible time period. Another very important ratio that is calculated is the debt to income ratio. Debt management and credit counseling always take into consideration three basic factors, which are, the interest and period, the total amount of debt (or credit) split into installments and the effects of late payment on the debtor. Hence as debtors availing services of debt management, we have to basically keep our eyes open for the following things.

  • Amount of Installation that is to be paid including the interest and service charge.
  • Date of payment of installation in order to have a timely payment
  • Total amount of money that we actually owe to the debtor as we tend to pay up much more than necessary

The pro-rata ratios thus make debt management very effective.
Credit Counseling
Credit counseling is an integral part of debt management. The best merit of credit counseling is that it can be availed by anybody and is also pretty affordable in most of the regions around the world. Many people who plan to take up a number of credit facilities, often take the help of credit counseling in order to choose the best possible credit facilities. I would always recommend you to go in for a credit counseling session so that you can get all your queries resolved before taking on the burden of a large debt.
Debt Settlement
Debt settlement is an option that is taken up either by the creditor or the debt management company with the help of a debt settlement letter. The debt settlement is basically a small negotiation between the debt management company and the creditor wherein both the parties (debtor and creditor) sustain losses in order to have a safe and speedy repayment. In case of resettlement, the debtor as well as the creditor often tend to sustain almost equal losses. The pro-rata ratio is recalculated after the debt settlement.
Debt Consolidation Loan
A debt consolidation loan is a very unique option that is offered by debt companies, but again is a form of debt. These companies provide their clients with enough finances to pay off all debt. The amount of debt is then summed up and repaid by the client to the debt management company over a very long period of time. The debt consolidation program might look very convenient but is pretty risky. There are also some debt management credit consolidation companies, that specialize in providing consolidation for debts.
Credit Repair
Many debt negotiation companies often undertake some procedures that are parallel to the operations of credit repair companies, where a sincere effort is made to repair the credit rating of a client. Credit repair, in most cases, tends to work wonders, due to the fact that almost all the negative aspects of a credit report are wiped out during debt management and credit repair. Some common negative aspects that are erased by the debt management company as a part of the best debt management program and service, can be enlisted as follows.

  • Late Payment Records: One of the most common agreements that take place during the debt settlement process is that, in return of a very speedy repayment, creditors promise to exclude the record of earlier late payments. The exclusion of records of earlier late payments is very effective and also very helpful, as it drastically improves the credit rating of an individual or organization.
  • Exclusion of False or Irrelevant Records: Sometimes wrong or false information is found in credit reports. These negative records have caused some problems to consumers in the past. As a part of the debt management program, the debt management company often includes many different initiatives to rectify the data on the credit report.
  • Issuing Credit Report Dispute Letters: A very difficult function that is performed by debt settlement companies is framing and issuing of a credit report dispute letter. The experts from the field of credit facilities, examine the credit report and then frame a letter to the credit report company in order to rectify the credit report. One must note that in the past, there have been cases where the credit report dispute letter has led to legal battles in courts.

To get an even better idea you may also refer to debt reduction strategies and debt settlement negotiation.
How to Hire a Debt Management Company
The final question that remains is that how does one search for the appropriate debt management service. Here are a few inputs and steps that you may refer to while searching for the right one.

  1. Search Your Locality: One of the best ways to hunt for the appropriate debt management and credit counseling service is search for a company that is in your locality and also provides personal attention to its clients.
  2. Search on the Internet: You can find some really good companies that provide excellent debt management programs, on the internet.
  3. Assess the Debt Management Program: It always helps to assess the elements of the debt management program. The best way to do so is to assess the debt relief solutions that the company is ready to provide.
  4. Your Requirements: In addition to that, it would also be very helpful to analyze your own credit report and conclude on your own requirements that you need to fulfill to get out of debt. You may also make a list of your debts and check out a debt management calculator or software.
  5. Review: It is always advisable to personally review the companies that you have short listed and would help you to get out of debt fast. The best way to do so is to go through the official website of the company and then go through some reviews that are available on the internet.

One of the best ways to have a debt free credit report is to be particular about the dates of repayments and the amount of installments. I would also recommend you to assess your own financial position before using any kind of credit.