Most households in the U.S are undergoing increasing financial strain. This comes in the backdrop of increasing costs of goods and a sluggish economy. The situation has not been made any better by growing global uncertainties and shifts which have made signs of economic recovery slim. It is these combined factors that have now forced families to go on a borrowing spree as incomes fail to keep pace with financial demands.
In a CNBC Report aired in October 2016, American households now have an average of $16,000 in credit card debt, which is close to the figures seen during the 2008 global recession. Total household debts including mortgages and auto loans have now hit $132,529, again highlighting the gravity of the situation.
This situation is also replicated in the business world where spiraling debt is forcing most enterprises to fold up. The main reason for such failures is cash flow issues precipitated by multiple debts according to a National Association of Small Businesses for their 2015 report.
How to Handle Ballooning Debt
In such a situation, it is understandable that household and business owners are looking for a way out of the debt hole. In most cases, people with multiple debts will end up defaulting and this ruins their credit profile. In extreme cases, both businesses and families can face legal proceedings and repossession, which can be devastating.
This is where debt management programs and plans come in handy. If you have been struggling to find a solution to your ballooning debts, you have most likely come across different solutions including debt management, consolidation and settlement. There are different players in the financial sector offering these debt relief solutions and while they are licensed, you need to understand exactly what you are getting into.
Below are some important factors you have to consider when looking for the best solution to your debt either as a business owner or a household owner:
Debt Management is a 3rd Party Agreement
When looking for a solution to your debts, you will most likely come across credit agencies offering debt management plans. It is important to understand how the program works in order to make an informed decision.
In this case, you will not be making payments to your creditors but rather to the credit agency in an escrow account. This amount is then distributed to your creditors when the account balance has accumulated to a substantial amount. The best credit counseling agencies have agreements with financial institutions, meaning you enjoy lower interest rates.
Debt Consolidation vs. Debt Management and Debt Settlement
Like most consumers, you are most likely confused about these three financial approaches to debt. In debt consolidation, you will simply bundle your loans into one. This works by repaying all the smaller debts using a debt consolidation loan and you will then continue making a single payment to the new lender. Consolidating multiple loans allows a consumer to enjoy lower interest rates and some peace of mind as they only have to deal with a single payment.
Debt management and settlement on the other hand involves negotiations with your creditors in order to get better terms. The idea is to make it easier to repay the amount by using their networks in the financial industry. Their negotiation skills come in handy in getting you the best deal.
Debt Management Agencies Differ
If you are looking for the best solution to your ballooning debt, take time to access the quality of the different agencies you wish to deal with. For starters, make sure the agency is registered with the National Foundation for Credit Counseling (NFCC) and the Financial Counseling Association of America (FCAA).
These associations have their own sets of stringent standards which all members have to adhere to. More importantly, every member has to meet certain conditions before getting registered and you are thus assured of quality services. Take time to read reviews and testimonials and ask for referrals from other clients.
Don’t Fall for the Hype
It is important to appreciate that like in any other industry, credit debt management companies will use all techniques to lure new clients. In this case, they will cite close relationships with financial institutions but essentially, most debt management plans work the same way. Once you identify a credit counseling agency, a counselor will work with you to evaluate your financial situation.
They will then come up with the loan repayment timelines for different creditors and the plan then commences. Your role will be making sure you pay the agreed amount and the agency will forward this amount to the creditors, thus gradually reducing your debt burden.
Consolidation Should Come with Counseling
The best Las Vegas consolidating companies not only offer consolidation services but go an extra mile to offer credit counseling. It might not sound like a big deal but these are financial advisers with extensive expertise. They will work closely with you to tailor a financial solution to your debt problem.
In most cases, all a household or business owner needs is an objective view of their finances to get back on the right path. By examining your current financial situation and creating a budget, it is easier for a consumer to make better financial decisions in life. You will have already seen the impact of uncontrolled borrowing and you will be wary of going down this path again.
Debt Management and Consolidation is not for Everyone
Like all financial plans, debt management plans cannot work for everyone. This is one reason why you need a financial advisor to look at your finances before recommending this solution. If most of your debt is unsecured and you have a steady income, debt management will work perfectly for you. However, a debt management plan will not work for other types of debt including taxes and child support.
Paying multiple debts is a daunting task to both businesses and individuals. If you are struggling to meet your debt obligations to different lenders, it is time to think about debt management. A credit counseling agency has the expertise needed to not only help you repay the most urgent debts first but also give you invaluable tips on improving your financial situation.
Isabella Rossellini is a debt consolidation expert. She has worked in the financial sector from many years in both public and private companies. She is also an avid traveler and financial writer.