The spread of the coronavirus, dwindling US economy, and loss of income for many Americans have increased the debt profile of several businesses and individuals across the country. The total US consumer debt has hit an all-time high of $14.3 trillion in the first half of the year. With the continual rise in household and business debt, debt solution companies are a go-to solution for many individuals and businesses looking to either manage their debts or become debt-free.
But if you are like most Americans, the idea of working with a debt solution company can be confusing due to common misconceptions surrounding the debt settlement and relief industry. In this article, you will learn more about how debt solution companies work, various debt relief strategies, and what you need to know before working with one.
What is a Debt Solution Company?
Debt solution companies sometimes referred to as debt management, debt restructuring, or debt relief companies are charged with the responsibility of helping businesses and consumers negotiate with their creditors on the term and value of their respective debt. As a prerequisite, most debt solution companies will advise that you hold creditor disbursements, pending written settlements agreements and releases. They may also ask you to consider using a dedicated reserve account to safeguard funds for use as opportunities to settle and satisfy your obligations become available.
As you judiciously budget your precious funds, the company will approach your lenders, lessors, and trade creditors on your behalf. They will negotiate extended terms, reductions, transfer of title of equipment, and full releases of future obligations. This allows you to clear your debt with reasonable payments, better terms, and clear endpoints. Sometimes, debt relief can take several forms: reducing the interest rate on the loan amount due, reducing the outstanding principal amount, increasing the term of the loan, or any combination thereof.
The company will argue on your behalf, emphasizing that by cooperating with the structured plan, the creditors will receive a greater return over a shorter period of time, compared to common collection efforts and litigation. Additionally, it should be noted that your business must remain in operation and out of bankruptcy or they may not see any return at all.
And if the debt solution company is successful in its negotiation of your debt, it typically charges a fee proportionate to the results or benefit given. In some cases, you might be required to pay additional fees (for example, maintenance of the savings account).
The goal of debt solution companies is to employ specific strategies to help businesses and individuals restructure and reduce their individual obligations and total trade payable.
Here are just some of the advantages of working with a debt solutions company:
- They can work with your creditors to establish settlement terms that work inside of your current cash flow restrictions.
- You can focus on running your business instead of fielding creditors’ demands.
- They can help you maintain financial control of your business unlike when restrictions are imposed by court-appointed trustees in a bankruptcy proceeding.
- They help you keep possession of your office and job-site equipment needed to run your business.
Financial Strategies Used By Debt Solution Companies
Debt solution is a broad term that covers several financial strategies that make repayment of debts easier, faster, and cost-effective. It is a common practice for debt solution companies to employ one or more of these strategies depending on the circumstances. Some of these strategies may require that you pay back your outstanding debts to save your credit rating. Others offer businesses and individuals a faster exit strategy. Let’s explore some of the major debt relief strategies employed by debt solution companies.
Debt Settlement Strategy
When you hear businesses and individuals talk about debt relief, they are most likely talking about a debt settlement strategy. A debt settlement strategy is sometimes applied by debt solution companies to help businesses or individuals get out of debt faster and for a lesser percentage of what they owe. Under a debt settlement strategy, the company negotiates with the creditor to allow their client to repay only a certain portion of the debt owed. Upon acceptance, the creditor or collector writes off the remaining part of the debt. As a result, the debt settlement strategy is usually the fastest and most effective way to get out of debt for many businesses or individuals without having to declare bankruptcy.
Because in some cases, debt can be written off by creditors it can potentially impact your credit in the short term; however, many of the top debt relief companies will protect you by not reporting your business to major credit bureaus and even offer ‘credit restoration’ services to help those who need or want to increase their overall credit score. Additionally, the settling and paying of debts will positively impact your credit rating in the long term.
Debt Consolidation Strategy
Debt consolidation is another strategy employed by debt relief companies to help businesses and individuals get out of debt quickly. This type of strategy involves taking out a personal loan at a lower interest rate to pay off your debts with a higher interest rate. Using the debt consolidation strategy allows you to combine all your high-interest debts into a potential low-interest single debt that is paid off with a single loan.
Generally, there are two major components of debt consolidation; getting a debt consolidation loan or requesting a debt management plan from your creditors without the need for new financing. A debt management plan allows you and your creditors to create a workable single debt repayment plan to cover all your debts but at a lower interest rate.
While both debt settlement and debt consolidation allow you to get out of debt quickly, they are entirely two different debt relief strategies. In the case of a debt settlement strategy, you get out of your debt for less than you owe while with debt consolidation you pay back everything you owe using a consolidated loan or using a debt management method without taking a loan.
What to Look For Before Choosing a Debt Solution Company
If you have decided that working with a debt relief company is the best option for your individual or commercial financial needs, below are some salient factors you should consider before working with one:
- Look for companies that operate under a performance-based agreement without retainers or hourly costs.
- Make sure the company offers comprehensive customer care so your individual needs are being met.
- Ask about reporting and whether you can be updated regularly on transactions and progress.
- If you are concerned about access to capital ask whether they could pair you with a special needs lender.
- Stay away from debt solution companies that collect service fees before you receive the benefits of their service or guarantee percentages of account balance reductions.
- You should check with other sources like the Better Business Bureau to see if there are any complaints or negative reviews about the company. You don’t want to get into deeper financial troubles by working with a fraudulent company.
- It’s also a good idea to look for companies with a positive track record and years of experience helping businesses similar to yours. Take the time to call and speak to their references.
- You should also be wary of debt solution companies that claim to have the power to stop debt collection calls or lawsuits completely. This is wholly untrue, totally improper, and dangerous!
- Be cautious of debt solution companies that claim that secured debts such as payday loans and merchant cash advances are “just another claim”. You should ask the company to present tangible proof to back their claim.
Finding A Debt Solution Company You Can Trust
Whether they are referred to as debt solution, debt management, or debt relief companies, the goal is to help businesses and individuals settle their financial concerns and avoid the issues that come from having to file for bankruptcy. Before choosing a debt solution company to work with, remember to do your research and learn all you can about all of their turnaround strategies.
With a combined 50+ years of industry-related experience in debt restructuring, credit and collections, vendor and cash management; the Reorganization Management Group is the clear choice for all of your long and short-term financial needs.
Whether you’re struggling with vendors and supply lines, lessors and industrial equipment, or just need a plan to bridge your financial valley, the services of REORG Group can help you clear the obstacles that are preventing your business from thriving.
Our goal is to help small businesses end financial hardship, find solvency and profitability and thrive while planning for the future. Call us today at 866-364-9161 and ask to speak to an advisor or you can fill out a no-cost/no-obligation form.
