Recent recession has adversely affected even the strongest of the economies in the world. People are struggling to get out of the pile of debt, which resulted due to bad economy. While most people frantically look for ways to put their finances back on track, those who hit a dead end opt for bankruptcy. However, that should only be considered as a last resort, when you run out of options. Some people hopefully enroll for any of the debt relief programs available to them, which are also called debt consolidation or negotiation programs. However, one must think twice before enrolling for any of them.
What are these Programs All About?
They are managed by agencies or companies whose main aim is to assist you in your debt payment. If you have overwhelming debt, chances are you might be repaying it for the rest of your life, and yet not succeed in full repayment. In that case, your creditor is going to lose a large chunk of it. The purpose of the program is to bring the debtor and creditor on a common platform to find a mutually agreeable solution. If the creditor agrees to waive off a part of debt, then the debtor might be able to pay off the remainder of it in less span.
This can be a win-win situation for both of them. However, things are definitely not so easy, when you actually decide to enroll for any of them. They are definitely not for everyone; some people are better off with the option of bankruptcy, while others simply do not have the mindset to continue with them. Hence, it is imperative that you consider their pros and cons before enrolling.
Pros and Cons
As mentioned above, these programs can actually help you to come out of a situation of debt sooner than you think. Even when you diligently pay the minimum payment amount every month, it often takes years just to repay the interest; more so, if you are deep in debt. In that case, the program can offer a convenient repayment plan, which will enable you to get out of it fast. However, this will work, only if you have a steady cash flow and the debt is not too overwhelming, in comparison with your income.
The biggest problem with companies offering it is that they keep their clients in dark, regarding how they plan to consolidate their debt. Moreover, they may offer lucrative options, saying you will actually be able to save money after consolidation. Such attractive options lure debtors to enroll for them. Besides, many of these companies are fraudulent, and have no intention of helping you out in the first place. Hence, always make sure that you make a deal with a reputed firm only.
One of the drawbacks of such programs is that, if you are paying your monthly installments on time, your creditors will simply refuse to discuss any plans of settlement with you. By making you pay for years, they will be able to reap huge profits from interest alone. This chance is lost when they agree for a debt relief. Thus, the program requires you to discontinue with the payments and go into default. This situation again leads to several problems.
Firstly, cessation of payment means your credit score will be adversely affected. Secondly, no creditor is simply going to sit and wait for you to continue with your payments. They have their own ways of collecting the money from you. This includes making nasty calls to the debtors, or deploying a collection agency for the job. Either of this option can be tremendously torturing for you. This is the reason why these solutions are not opted by many.
If you see the good side, you may realize that if your credit score is already in dooms, opting for such programs may not affect it much. After all, it is best to clear your impending debts first, rather than worrying about how to gain future ones.