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Fundamentals Of Debt Mangement And Debt Settelment

Aug 18, 2007
Both debt management and debt settlement services are similar but with a minor difference. While debt settlement services only concentrate on eliminating your existing debts, debt management services also provide you with tips on how to remain debt free even after you get rid of your earlier debts.

The function of debt management services is to help their clients get rid of their existing debt. And the better services will go beyond that and help their clients to stay clear of future debts once they have successfully eliminated their present debt.

The debt management services also negotiate with the client's creditors and obtain better deals for him than he could have got himself. As a debt management service provider, they have a much greater leverage to convince the bank than individuals who had loaned money. Negotiations can lead to friendlier repayment terms which are suitable for the client. Otherwise dragging the entire thing to the bankruptcy court doesn't help either the bank or the individual.

The main objective of debt settlement is similar to what it is of credit counseling and that is to make their client get rid of the debts they have accumulated. But there is a difference in the way the two perform. While the credit counseling or Debt Reduction method work on reducing the rate of interest for you to pay off your debt more easily, the Debt Settlement method actually reduces your original principal amount of loan by up to 50%-75%. That is something remarkable. But one must also understand that there are a few things one should be careful about.

First of all, debt settlement is only for those who have just no option but to go bankrupt. It should not be used as a method to pay less and get off your debts. You will only be considered if you are really in no position to repay the original debt.

Once you join an agency you will need to pay a fixed some of money which is then deposited in an escrow account. You will need to put in an exact amount every month. The amount will be worked out by the agency in discussion with you. It is only after you have gathered enough money in your escrow account that your debt Settlement agency will contact your creditors. And then the negotiations start. As deals get struck you pay off the debt with your money accumulated in the escrow account. And you continue saving till you have paid off all your debts.
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