Every person who has ever got mired in credit card debt or personal loan debt could not have failed to have noticed the very aggressive advertising by debt relief agencies promising to take care of their debt problems. Since it is very easy to get swayed by the very persuasive sales talk, you need to bone yourself up on the essentials of debt management so that you can take a considered decision that will be in your best interest. Some essential facts:
Figure Out What the Agency Will Do
The debt relief and management industry can be really confusing to the people who do not know much about it since many terms are used interchangeably and need to be interpreted according to the context. There are some agencies who just act as a third-party payer who will just relieve you of the task of paying off a number of creditors every month by taking just one payment from you and distributing it to the creditors in the best possible way till the debt is wiped off. Still, others will extend a debt consolidation loan to you that can be used to pay off all your existing creditors and leave you with just one debt to service at a lower rate of interest and a tenor that makes the monthly payment affordable. Some agencies will take on the task of negotiating with your creditors regarding the reduction of interest rates and accumulated penalties, and even persuade them to accept a substantially lower amount in full and final settlement of their dues. Every method has its advantages and disadvantages that need to be carefully evaluated.
Agency Quality Can Vary a Lot
Simply because it is a matter which is as sensitive as your finances and credit rating, it is very important to be really choosy about the agency that you work with to get rid of your debt burden. The sector is also full of unscrupulous players who think nothing of ripping you off and leaving you in a situation that’s considerably worse than before. Ideally, you should look for a non-profit agency that is accredited by the Financial Counseling Association of America (FCAA) or the National Foundation for Credit Counseling (NFCC). This is because both these bodies conduct a strict due diligence on debt relief agencies before giving permission for membership. After making a shortlist you should look up their reputation as to how they have been managing customer expectations and the nature of customer feedback before making up your mind. Then, of course, you need to interact with the agency and only go forward if you feel comfortable with them if their counselors seem competent and they assure you of a strong level of customer support.
Undergo Counseling before Consolidation
Depending on what the agency wants to sell to you, it will suggest a course of action that may seem quite plausible to you upfront, however, it is best that you undergo a financial counseling so that you can figure out how much you owe in terms of debt, the various interest rates applicable to them, what your income is, and how much, if at all anything, is available to pay off your debts. Conducting this exercise will also reveal how much of your income is going towards servicing debt, meeting essential, and lifestyle expenses. An experienced and knowledgeable counselor will be able to teach you how to prioritize your debt retirement schedule so that the interest outdo is minimal and also suggest making tweaks to your lifestyle so that you have a larger surplus every month to pay off the accumulated debt. A competent counselor will be able to suggest if debt consolidation is indeed the best way of getting a hold on your debt trap, or whether you need to consider more drastic courses of action such as bankruptcy.
It is not a good policy to rush off and engage the first agency that bowls you over with its sales talk and promises to get you out of your debt without pain. The first step towards getting out of debt is getting to know how much you owe, and how much you can spare towards servicing your debt. If you can figure out what your pain points are, you can get closer to figuring out how you can address the problem. Debt consolidation can be a very effective way of getting on top of your debt provided you exercise financial discipline and do not start using your credit cards recklessly once again after having settled your old dues.
Emmy Austin is a financial counselor with over two decades of experience in dealing with clients with credit card debt. Emmy has also authored two self-help manuals for people wanting to solve their debt problems by themselves.