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Professional Debt Management

Sep-28-2017 By Frugal 101

Free debt consolidation means converting number of unsecured loans into an unsecured loan or secured loan backed by an asset, that acts as collateral. In case of non-payment of loan, the lender can sell the asset and get back the amount given as the loan, and since, the risk of lender is less in case of secured loan, the interest rate of secured loan is lesser than unsecured loan. Many companies act as debt consolidator and discount the amount of loan. One can consolidate all the monthly debts into single reduced monthly payment. Even in case of bankruptcy, the free debt consolidation can be used where the debt consolidator will buy the loan at discount but decision of consolidation should be weighed properly since consolidation can affect the ability of debtor to discharge debt.

 

There are two forms of free debt consolidation: debt management plans and debt settlement plans.

Debt Management plan help debtors manage the debts. Debt Management Company negotiates with creditors to lower the debt and interest rate and debt pay-off period on the behalf of debtor. It is best suited for individuals whose intention is just to manage the debt in regular course of business.

Debt Settlement Plans are best suited for individuals in extreme financial emergency, where apart from negotiating with creditors, company also appoints an attorney to deal the debt on the behalf of debt.

Advantages: The free debt consolidation is best suited to particular situation depending upon the amount of loan, the financial discipline of a person and the future options available. It is a good way to come out of financial distress. Debt consolidators help to act on behalf of debtors resulting in ending up the calls from creditors, high interest rate and penalties.

Disadvantages: People are tempted to consolidate unsecured debt into secured debt, usually secured against homes. Although monthly payments are lower, total amount repaid is higher than the total value of loans converted. In other words, the time period of paying back the loan is increased which lead to decreased monthly installment payment, but the total amount paid in those years is more than the value of loan that has been converted. Free debt consolidation sometimes treats only the symptoms of debt but do not solve the debt problem from the root.

Summary:

Free debt consolidation is the process of converting the unsecured loans into one loan. The time period to pay back the loan is increased and hence, the amount of monthly installment is reduced, though the total amount paid during the whole period is higher.

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