Not everybody knows that debt repair companies purchase the client’s debt at significant discount price when bankruptcy is a possible threat. Then they offer a repayment program to the debtor and they make a good difference by this process. Therefore, it is a good idea to shop around for consolidation agents to see what they can offer since they are already making money out of the deal.

The problem is that people are so pressed and rushed when they start seeking agencies that they tend to go for the first offer they receive. Moreover, since these agencies are fond of making promises as to how high the debt reductions they can obtain might reach, people get carried away and do not pay attention to the fine print that explains in which situation such wonderful results can be obtained.

How Debt Consolidation Agencies Make Money?

These agencies purchase the clients’ debt from the creditors who are eager to collect at least a portion of their investment. Some creditors will not only give up the interests they where expecting to collect but also sometimes even part of the principal. Since they might fear losing the whole amount, they find the offers of the agencies appealing.

You may have a $5000 credit card debt but the creditor will settle it for $3000. However, the debt agency bought $5000 of debt and technically they can now make a claim for that amount. Yet, the agency can offer you a repayment program with lower monthly payments, and / or a debt reduction. For instance, the consolidation agency can reduce your debt to 4000, that way, they made $1000 right away by purchasing the debt at a lower price plus the interests that they will charge you for financing the new amount.

Get Your Share

Each agency works differently: some will purchase your debt and your new debt with them will not have a reduction but you will get a longer repayment program, a lower interest rate and therefore, lower and affordable monthly payments. Others will give you a debt reduction and do not offer such a long repayment term and thus you may have to afford higher monthly payments.

Therefore, it is important to shop around for your debt consolidation agency and hire the services of the one that offers to you the best terms. Of course, this requires patience as you need to contact many different companies and request information from them regarding their debt consolidation programs. Yet, if you take your time to run comparisons between their offers it will surely pay out and you will get significant savings.

A Possible Risk

Make sure to be certain about what you are agreeing to. Since these companies make money by getting discounts from the original creditors they may force a default on current debts to make the creditors believe that their borrower is possibly filing for bankruptcy. Though this may seem a good technique, the agency will benefit the most of it and your credit score will suffer greatly. Therefore, make sure to retain some control over what the agency does with your debt.

Author Bio: Kate Ross has a Master in Finance and has been a financial consultant for years. She specializes in Guaranteed Personal Loans and also in helping people to get approved for Guaranteed Loans for Bad Credit, unsecured loans, poor credit loans, no credit check loans, student loans among many other financial products. Visit her at http://www.speedybadcreditloans.com

Category: Finances
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