If I Do A Debt Consolidation Program Will The Creditor Harassment Stop?

By Stephanie Robins on March 13, 2010, 6:03 am Posted in Finance News

Many consumers who find themselves over their heads in debt turn to debt consolidation in lieu of bankruptcy. Advertisements for such services can be seen regularly, offering promises of easing consumers’ strain and getting creditors off their backs. This can be especially appealing to those who have been harassed, at home and at work, by overzealous collectors. Two major questions to be asked are: how does debt consolidation work and will it get the creditors to back off?

Debt Consolidation Rundown

Debt consolidation services are everywhere these days. In print and in televised media, companies offer to trim consumers’ debts by up to half, lowering payments and easing minds. One has to wonder how they do this, and what’s in it for them? A number of debt consolidators make arrangements with the finance companies involved; they negotiate lower payments, lower interest rates, and longer repayment terms. For their troubles, the consolidators typically receive what is known as a “kick-back fee”, or a fee tacked on to the original debt, usually around 10%. For example, a debt consolidator works with the finance company to get a debt down from $600 to $400 for 10% of the original debt, or $60. The consumer pays the lower payment as $460 to the creditor, who then “kicks-back” $60 to the debt consolidation agency. Other debt consolidating agencies will charge the consumer an up-front fee for service, but collect nothing from the creditor or finance company.

Does The Consumer Even Need to Worry About Debt Consolidation

Before the consumer goes through debt consolidation, bankruptcy, or even argues with the collection agency, he or she should check the statute of limitations on debt within his or her state. In some states, the limitations on pursuing debts can be as few as three years, while in other cases it can be 20 years. There is also the option of direct negotiation: the consumer contacts the creditor or finance company directly and works out an extended payment plan at a lower interest rate. However, some individuals are uncomfortable with such and so employ the services of the debt consolidator. In this case, the consolidator acts as somewhat of a mediator between the consumer and the finance company.

Does Debt Consolidation Stave Off Collectors

Once a written agreement has been drafted between all parties involved, the harassing phone calls should cease. The consumer must insist upon a written agreement, not a verbal contract; written documentation always holds up better in legal matters. Try to include a clause stating that the collections’ agency will not contact the client/consumer about the matter further. That way, if the consumer receives any more unwanted contact from the collections’ bureau, they have the option to pursue legal action for harassment.

Related posts:

1. How Does A Debt Consolidation Loan Without Owning A Home Work?
2. How Does A Debt Management Program Really Work?
3. What Is An Unsecured Loan For Debt Consolidation?
4. Things To Know About Statute Of Limitations On Credit Card Debt
5. Can I Withdraw From A Debt Consolidation Program If I Want To?