1. What is the difference between debt management and debt consolidation loans?
Debt management companies do not offer debt consolidation loans, instead they help the debtor to work out a repayment plan and discuss this plan with the creditors. Debt management companies also make sure that the payments arrive to the creditors every month, so the debtor will keep in touch only with the debt consolidation company, not with the creditors.
2. Will the repayment period be longer than before the debt management plan?
Yes, it should be clear for every debtor, that the debt management company negotiates a lower monthly repayment, so the repayment period has to grow in case the debtor repays all his debts. The plan is made according to the debtor’s financial situation in case he cannot repay the sum agreed in the initial contract. Then the debt management company negotiates with the creditors and the monthly repayment will be a smaller sum, both the period of repayment will be somewhat longer.
3. Why can’t I negotiate with the creditors?
People often ask this question. It is important to know that the debtor can negotiate with his creditors, but in most cases these negotiations do not have a good ending because the debtor is not well-prepared. Debt management companies already have a routine in negotiation, debtors usually do not. It is better to hire competent people who will surely reach the result, than to struggle alone when there is a possibility that the creditors will not accept the debtor’s plan. Negotiating with the creditors is not easy, mostly because the debtor will focus on his problems and not on the fact that creditors want their money back, so it is for the better to hire a debt management professional, who will do everything from negotiating the plan to sending the money to the creditors.
4. Can I be sure that the creditors will accept the arrangement?
That is the main reason people contact debt management companies, because they are professionals and they guarantee the success. If the debtor himself goes to negotiate the debt management plan, the creditors might not accept it, but when a debt management professional goes to negotiate with them, they will accept the proposal in most cases. After all, they want their money back, so they will welcome a reasonable proposal any time. It is important that creditors do not have to accept such a proposal, but they do in most cases, because if the debtor declares bankruptcy or simply cannot repay them, they will lose all the money they lent. So it is in their best interest to accept the repayment proposal.
5. Does a debt consolidation company deal with all kinds of debts?
This is not true; they cannot deal with every debt type. A debt consolidation company usually deals with unsecured debts, like personal loans, credit cards or even overdrafts. They cannot deal with debts like mortgage, any loan secured against the debtor’s property and monthly services must be paid by the debtor. These are considered priority debts, while the debt type debt management companies deal with is non-priority debts. The priority debts should be paid by the debtor himself, and when making the repayment plan for the non-priority debts the debt management company takes the priority debts into account.
You can find more about
the different types of debt you can consolidate on this website.
6. How much does debt management cost?
This is a question every debtor has to ask when he contacts a debt management company, because they have different fees. A debtor should choose a company with smaller fees, but this should not be the only criteria. Companies usually ask for an up-front fee, and they will ask for a smaller monthly fee too. The sums vary from one Debt Management Company to the other, so this is a frequent question which has to be asked every single time.
