One in three Americans has at least one debt in collections whether that is credit card debt, car loans, medical bills, unpaid tickets, or even something as simple as unpaid memberships. Americans owe more than $11 trillion worth of debt and roughly $830 billion of that debt is unpaid or in collections. Borrowing money has become a lot easier even for people who shouldn’t be borrowing money in the first place.
Often times when a debt hasn’t been repaid, the lender chooses one of several options. These options being: selling the debt, continuing to try to collect it or, hiring a third party debt collector to recover the debt for a fee. However, the Consumer Financial Protection Bureau has cracked down on the debt collection industry with more protections put in place for the consumer and many companies exist solely to help consumers consolidate their debt. These companies use varying methods such as:
Debt management
When choosing Debt management, consolidation companies will work with creditors on the consumer’s behalf in order to reduce monthly payments, reduce interest rates and, waive or reduce penalties. This method involves the parties agreeing on an affordable payment schedule that allows three to five years to pay off the debt.
Debt settlement
Debt settlement is considered one of the more risky methods. Through this method of debt consolidation, the creditor agrees to accept less than the amount fully owed by the consumer. This also means that debt collectors cannot harass the consumer for their payments. However, this method will not halt late fees or collection notices while the settlement is in the process of being negotiated. Debt Settlement can sometimes take years and you may owe tax on any forgiven debt.
Debt relief
Another form of Debt Settlement, the consumer pays back the debt in multiple payments that are significantly less than the original amount. During Debt Settlement, Debt Relief and, Debt Negotiation the consumer will halt payments to the creditor during the negotiation period of Debt Relief. Consolidation Companies will then contact the creditors to assist the consumer with negotiating a lower payment plan.
Debt negotiation
Debt Negotiation goes hand-in-hand with Debt Settlement. It is the negotiation period of the Debt settlement method. During the negotiation period, all of the consumer’s payments are paid to the consolidation company. The consolidation company typically withholds the payments to the creditors. All parties will agree on a reduced balance that the creditor must accept.
These varying methods are used in order to consolidate debt. Debt Consolidation companies usually have different approaches, which include using an in-house debt counselor, referring consumers to other companies that may assist them or, referring consumers to debt attorneys.
