What Are the Different Types of Debt Relief Agencies?

Debt relief agencies are designed to assist people who are unable to manage their debt load effectively, with the ultimate goal of helping those individuals get back on their feet financially. Since there are a number of different types of financial hardship that may be involved, there are several different types of debt relief agencies to choose from. When utilized to best effect, each type can help certain consumers overcome their financial problems and have the chance to start over, hopefully avoiding the situations that caused the former troubles.

One of the more common types of debt relief agencies is the debt settlement firm. This type of agency seeks to negotiate with all a client’s creditors and make arrangements to pay off the debt over a period of time. The client tenders a monthly payment to the consolidation agency, which then allocates a portion of that payment to each of the creditors according to a specific plan created to settle the outstanding debts. One benefit of this approach is that creditors will often agree to stop applying interest to the balances due, which expedites settling those balances. A down side is that this sort of action can appear as a negative item on a credit report.

Another of the several types of debt relief agencies is the debt forgiveness agency. In this application, the goal is to work with creditors in order to have at least a portion of the debt removed from the balances due. Depending on the circumstances involved, the partial debt forgiveness may do away with as much as half the outstanding debt. This approach can be very helpful, if the debtor can afford to retire those remaining balances in a short period of time, such as three to six months after the deal is finalized.

Companies offering debt consolidation loans are also classed as debt relief agencies. With this strategy, the agency grants a loan to the debtor that covers all outstanding balances on current credit card and other eligible accounts. Typically, the agency prepares and delivers the payments on behalf of the debtor to each of the creditors, resulting in zero balances on those accounts. In return, the debtor pays off the consolidation loan in monthly installments. This approach can work very well, assuming the debtor pays off the loan according to terms and does not generate a new mass of debts while doing so.

Debt counseling agencies are also one of the more common types of debt relief agencies. Here, the focus is helping clients learn how to manage their money properly by establishing and sticking to a workable budget. Depending on the financial circumstances of the client, the tools of debt settlement, debt reduction, or debt consolidation may be recommended, with the counseling agency possibly helping the client secure those services from a vendor partner. For people who have an equitable amount of income but lack expertise in managing money, a counseling agency can provide the tools to avoid a financial disaster and develop positive financial habits that empower the client to take control of the finances without the need for debt forgiveness, bankruptcy, and the other solutions that are required in more dire circumstances.