Debt Free Solutions for Unsecured Debt Problems
Paying Off Debt with a Debt Relief Program
When struggling with unsecured debt problems, paying off debt and reducing monthly repayments is of fundamental importance. Although debt free solutions aren't suitable for all scenarios, they can help a high percentage of those who are finding it hard to meet their financial obligations. Unpaid credit card debt, unsecured loans, repossession deficiencies and others sources of unsecured borrowing can all be tackled with a debt settlement program or a debt management plan.
Debt Free Solutions
A debt relief program can help a borrower to get their finances back in order. This is achieved through a reduction to the principal (amount owed) and/or lower monthly repayments. Instead of making payments to multiple creditors, a single sum is paid to an intermediary (the program provider). After taking their fee (typically 15%), the remainder is disseminated to creditors on a pro rata basis. Paying off debt is achieved on the borrower's terms and not the T&C's of the original agreement.
Why Do Creditors Agree to Debt Relief Programs?
It seems odd that a creditor would consider a debt free solution that results in them receiving less than they originally lent. However, once the borrower has defaulted on an agreement, the debt will eventually be sold to a collection agency and the loss is written off against corporate taxes. Given that collection agencies are buying defaulted accounts for as little as 10% to 20% of the actual value, any extra money received represents their profit. The negative for the borrower is that defaulting on a loan or credit card agreement will result in a far lower credit score.
Paying Off Debt with a Debt Management Plan
Whilst this debt free solution does not result in the collection agency reducing the principal, it will result in the debt being restructured to improve affordability. Following an income and expenditure analysis, it will be determined how much can comfortably be contributed to a debt management plan each month. Whilst under no legal obligation, most will be prepared to freeze charges and further interest. It is important to appreciate that reducing repayments will increase the longevity of personal debt.
Clear Debt Problems with a Debt Settlement Program
Unlike a debt management plan, paying off debt is achieved through a reduction to the principal of up to 50%. The remaining money owed is settled over a 12 to 36 month period. The shorter the term of a debt free solution, the more likely the collection agency is to agree to it. It is important that debt settlement program charges are taken from each monthly contribution and not taken up-front in order to avoid problems further down-the-line.
Pros and Cons of Debt Free Solutions
A debt relief program means that paying off debt can be achieved in a fraction of the normal time, especially when compared to revolving debt on credit cards. To aid the process, an account manager will help with the entire process from start to finish. This means that, in the event of unwelcome creditor contact, the borrower has someone to turn to. However, there are costs that need to be paid and entering either a debt management plan or debt settlement program will normally mean a reduced FICO score.
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