Debt solution

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Helene Mueller
eCollect support team

A debt solution portrays the resolution of a bad debt situation. It refers not to the bad debt itself, but to the occasion, where a past-due payment has occurred. From this moment onwards debtor’s liabilities are marked as defaults and they are considered as late payments. When a consumer falls behind with his monetary obligations towards a creditor, the lender is then legally authorised to pursue these defaults and request repayment from the subject of debt. If the debtor has problems with paying his obligations on time, he can resort to professional debt help companies, which offer personalised solutions for past-due defaults’ reimbursement. In order a consumer to choose a debt solution repayment plan, he has to be clear about these schemes’ characteristics and specifications. There are various ways for a debtor to resolve his past-due payments’ situation and to become debt free. The most appropriate option for a consumer in debt is to recourse to professional debt help organisation. There are some debt help institutions, whose services are completely free of charge. Their aim is to help debtors (individual and commercial) surmount their debt situation difficulties and repay all their liabilities towards a lender.


Personal debt solution

A debt solution can be provided either before a consumer has fallen into a late-payment situation or after a debtor has already run into debt. Sometimes even if the subject of debt has a good income, he can still fall into debt. If the amount borrowed is excessively large, the liability will fall under the definition dead-weight debt. In such case, it is advisable that the consumer resorts to a specialised organisation, providing debt solutions for indebted subjects. These solutions represent personalised debt schemes and are carried out individually for each customer.

If the lender is already in a debt problem situation and he cannot afford to keep up with the payments anymore, there are several methods and schemes he can use for a debt solution. A consumer with late debt payments can negotiate with the creditor for change in the loan terms and contract agreements. Some lenders will agree to restructure the debt policy conditions so that the monthly fees become more bearable for the debtor; he can reduce the monthly payment amounts (e.g. debt management and debt management plans- DMPs), agree to combine all debts into one with reduced interest (debt consolidation), etc. Another option for debt negotiation is to hire a professional debt management company to work out a personal debt solution for the individual in debt. Such agencies can negotiate with the lender on behalf of the debtor. During such debt rearrangements, it is possible that a creditor will agree to pardon part of debtor’s liabilities (the total debt amount will be decreased, like with the Individual Voluntary Arrangements in the UK, where the default sum can be written off with 20-30%), interests might be frozen, or the lender can change and lower the monthly fees but prolong the debt repayment period.

If the debtor uses the services of a private organisation offering debt solution schemes, he will not only benefit from debt reduction, but he will also receive further help and instructions. Non-government companies offering debt help will advise the consumer/commercial debtor how to manage his cash income, budgeting and other methods, which will help him to avoid falling into bad debt situation in future.

Debt solutions: risks

Although a debt solution is always a convenient repayment option for a consumer, he has to take into consideration that each of the aforementioned methods for clearing a default liability conceals certain risks, which are not always admissible. Therefore, before choosing a debt repayment plan, a debtor should assess his personal debt situation and appraises whether to use a debt solution for repaying his defaults, or not. When using the debt solutions schemes mentioned above, a debtor might get involved in the following situations:

  • If he falls behind with his payments again, after the usage of a debt solution theme, he can lose his home, if it is marked as a collateral. This can be applicable for debt consolidation, where the last consolidating debt is usually a secured liability, involving a real estate guarantee. A foreclosure or an equity forced upon debtor’s home can be also employed, when using the Scottish Trust Deed scheme; etc.
  • When decreasing the monthly payments, the total debt amount will increase and the debtor will have to pay more in total and for a longer period of time (for debt management plans);
  • If the creditor agrees that the debt can be settled for a lesser amount than the original sum, the consumer will benefit, but this will severely damage his credit report (in the U.S.- for 7 years). This is applicable to debt settlement and debt settlement plans (source:
    http://www.creditsesame.com/blog/getting-out-of-debt-pros-cons-of-debt-settlement/
    ).

Used literature & external links

http://www.stepchange.org/Debtinformationandadvice/Debtsolutions.aspx
 

https://www.payplan.com/debt-solutions/
 

http://www.jubilee2000uk.org/scottish-debt-solutions/a-guide-to-scottish-trust-deeds-in-the-uk.html
 

http://www.cleardebt.co.uk/debt-management/advantages-disadvantages-of-a-dmp