Debt assistance

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Helene Mueller
eCollect support team

Table of Contents

Debt assistance refers to professional debt help and specialised debt advice for getting out of a bad debt situation or to avoid falling into an overdue payment position. Such assistance is provided by non- government organisations, which are legalised and licensed to perform and carry out the whole process of debt assistance and debt solutions. According to different statistics, it is proven that the most popular and most often occurring debt is the credit card loans, as credit cards have no regulations for their usage and some of them even have no limits. Therefore a consumer can easily fall into an individual debt. Professional assistance’s aim is to reduce the weight of the past- due monetary obligations and relieve the debtor from financial difficulties. Most debtors prefer to use specialised help from assistance debt companies, rather than filing for insolvency or bankruptcy, as the last two options will severely damage one’s credit report and credit history.


Debt assistance services

Debt help companies counsel borrowers in different financial and debt matters. If a consumer needs professional debt assistance, the agency will fist provide him with professional debt advice & debt help. The aid will be complied with debtor’s monthly income and will be conformable to his current financial state.

Agencies, providing assistance for debt clearance, will prepare a personalised budget plan for the debtor and help him overcome his financial problems. They will assist in performing a strict income separation in order for the borrower to evade past- due liabilities in future. Debt help organisations will also guide the consumer through the process of calculating and economising his monthly earnings. If the debtor has an overdue credit card loan, which he does not clear in full each month, its balance will rise, as the remainder unpaid amount will increase the interest for the next months as well. This will lead to augmentation of the total balance overall.

If the debtor suffers from severe income loss or decrease, the debt help agency can accommodate different repayment plans or even bankruptcy substitutions. The last will most likely harm debtor’s credit history, but insolvency alternatives have more convenient options and functions, than filing bankruptcy. When the borrower has taken more than one loan from different creditors and he is confused about all his incoming bills, the debt assistance agency can offer him to consolidate all his debts into one liability towards one lender. This will also decrease the total amount of the monthly interest to be paid by the debtor.

Some help agencies offer free negotiation services with the creditor on behalf of the borrower. As they operate on a charity principle, the process will be completely free of charge for the consumer. Assisting default agencies will try to work out and arrange various repayment plans for the debtor:

  • Negotiating with the creditor to forgive part of the full debt sum. In return the debtor will make one lump sum payment and the rest of the amount will be considered as written off (debt settlement);
  • Informal agreements, which will contribute more convenient repayment terms for the debtor, such as lower monthly payments, lower interest rate, or even freeze of all charges, which are applicable towards the consumer (management debt plans and schemes); Formal agreements, which will bind both sides with legal obligations and will decrease the risk of breaching the debt contract (different voluntary arrangements). In UK these arrangements are called IVAs or CVAs, which apply for individual debts (respectively the Individual Voluntary Arrangements) and business loans (Company Voluntary Arrangements);
  • If the debtor is a UK resident, he can ask the debt assistance company to help him file for a Debt Relief Order, which describes the inability of the consumer to cover his debt obligations anymore;
  • If the subject in debt is a resident of Scotland and needs a statutory solution for debt clearance and change of terms, he can use a Trust Deed scheme. TDs are usually unofficial, but can also be bound by law (the so- called Protected Trust Deed);
  • If a Scottish resident wishes to go for a more flexible option than the Trust Deed, the debt assistance agency can offer him filing for the Scottish alternative of the debt management plan, called Debt Arrangement Scheme. Again, the monthly sums are complied with debtor’s financial capacity, and the period of repayment is prolonged, dependent on the instalment amounts the borrower pays each month;
  • Some debt assistance agencies can even represent the consumer at court, if the debtor has no financial funds to defend himself during legal and court actions. Such companies have their own law departments, authorised solicitors and attorneys, which can provide the borrower with legal help.

Used literature & external links

http://www.jubilee2000uk.org/credit-card-debt-advice
 

http://www.economyprofessor.com/2014/03/what-is-an-iva-individual-voluntary-arrangement
 

http://www.allaboutmoney.com/debt-advice/debt-arrangement-scheme/debt-arrangement-scheme-and-trust-deeds-what-is-the-difference-0-4628.htm
 

http://dasscotland.gov.uk/help-centre/guidance/money-adviser-guidance