Getting free debt advice

Helene Mueller
eCollect support team

A free debt advice (also known as debt counselling) is generally recognised as a substitute for consumer’s or corporate’s bankruptcy situations. It is a non-paid service provided by a debt collection agency or a debt advice company, with the purpose of helping a consumer in debt to cope with the difficulty of repaying a certain amount owed. A DCA (Debt Collection Agency) operating on the part of the original creditor can provide a debt advise to a consumer, as such situation is beneficial for both sides- the creditor and the debtor. Some agencies might either request additional payment from the subject of debt for such help, or decide not to charge the consumer any further taxes, except for agency’s usual interest rate. A free debt advice generally consists of helping the debtor to become capable of estimating their income and expenses in order to settle the existing debt and not to fall into a debt situation again. In order to help the debtor, the debt collection agency will first need to assess debtor’s budget, i.e.: all details of the default, financial condition, working status, monthly income, household bills, etc. However, if the DCA is collecting on behalf of the original creditor, it can also propose different negotiation plans, such as debt settlement, debt management plan, Individual Voluntary Arrangements or debt consolidation.

Free debt advice for debt settlement

Debt settlement is offered as a free debt advice, when the creditor is willing to forgive part of debtor’s monetary obligation. Such negotiation method can be provided either by the DCA acting on creditor’s behalf, by a private law firm or by a separate debt settlement agency. When a lender agrees to this debt repayment option, the subject of debt (consumer or company debtor) must make one lump sum payment to creditor’s account and the lender will forgive part of the debt amount. Usually when offering this free debt advice, the debt monetary sum can drop to 70% or less from the original default amount. If the consumer has hired a lawyer to represent him during the whole debt collection process, the solicitor might choose not to charge the debtor extra for the debt settlement negotiation with the creditor. If the credit settlement is performed by a third-party DCA hired by the lender, the agency might charge the consumer or the creditor, depending on DCA’s policy. If the whole process is carried out by a private agency, not involved in the debt collection process,the subject of debt will have to pay additional fees, applied by the private company, as such agencies operate for an interest percentage.

DMP & IVA as debt advices

Debt Management Plans (DMPs) and Individual Voluntary arrangements (IVAs) for UK & Wales can also be convenient options for both debtors and creditors. IVAs are usually used by consumers, who owe larger and unsecured debts. This option can be taken as an advice, when the debtor is no longer in a stable financial condition and cannot afford to pay monthly for the debt amount anymore. Management plans are offered to debtors, who wish to change their contract terms for payment, no matter what is the debt size. Both options represent a written agreement between a consumer / corporate debtor and the original lender. While the DMP is unofficial, the IVA represents a legally binding contract. A debt management plan can be carried out by the same collection agency, operating for the creditor, but the IVA can be worked out and formed as a legal document only by an Insolvency Practitioner agent. When a free debt advice for a DMP or an IVA is given to the debtor, one must bear in mind that debt management plan’s conditions might not always include freeze of further taxes. While the IVA’s free debt advice guarantees that all additional debt interests will be frozen and the debtor will have to pay only the debt amount.

Debt consolidation aid

A debt consolidation is another form of free debt advice and is usually offered to people owing unsecured debts. This can be offered to the subject of debt when he wishes to borrow another bigger loan in order to clear one or more old debts. Generally the debt consolidation is described as unification of all bills and past-due payments into one single loan to be paid. Such advice is typically offered to consumers / business debtors, who can afford another loan, as the last amount is usually a secured debt, and the collateral can be debtor’s real estate, car, etc. Debt consolidation loans have fixed rates and sometimes the creditor might agree to lower the full amount of the debt instead of waiting for the consumer to file bankruptcy.

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