Debt Relief via Outside Agency Payment Plans

Outside agency payment plans can provide many concessions for individuals who are in debt. Entering into a structured program that involves negotiation or debt settlement with creditors is a recommended alternative to bankruptcy in certain situations. These businesses exist to help debtors achieve financial freedom over time and have the staff expertise to eliminate or reduce some fees in order to repay principal in a timely manner.
 
In most cases, the outside agency will work only with unsecured debt. This includes credit and store charge cards, along with student loans and even household utility bills. They can also have an influence with the companies you owe in the cases of unpaid medical or legal expenses.

Advantages of Outside Agency Payment Plans

Outside agency payment plans provide many benefits for individuals in financial trouble. Representatives negotiate with creditors on your behalf in a professional, detached manner. They know the parameters in which creditors will make concessions. You will pay one fee to the agency, and your counselor will then disburse it to the accounts owed. You will continue to receive a statement at home for each debt.

In addition, solicitors will stop contacting you by phone or by mail, sometimes immediately and more often after the first few good-faith payments are made.

The goals and benefits of working through an outside agency include:
  • becoming debt-free
  • lower amounts owed
  • making a single monthly payment
  • no risk to personal property
  • reduction in monthly payments.
Another benefit in soliciting an outside agency is that you'll be eligible to secure loans and purchase a home at some point. A mortgage after bankruptcy is virtually impossible to obtain until after a discharge.

Drawbacks of Using an Outside Agency

Using an outside agency to reduce or negotiate debt avoids the stigma of having a bankruptcy filing on your record. However, in the case of filing for Chapter 13, if you miss a payment, you're protected. This is not the case with a negotiation plan.

Some debate exists about the credibility of some agencies. Those that are dependent on creditors for payment may not have your best interests in mind. If they're paid on a percentage of the amount negotiated, you might not receive the most generous write-off on some debt.

Other red flags include:
  • contracts that are difficult to understand
  • hard-to-reach counselors
  • large up-front fees
  • pressure to sign up
  • promise of debt relief that sounds too good to be true
  • request for fees without conducting an in-depth review
  • request for voluntary contributions.
A reputable agency will provide easy-to-track account information. Always inspect monthly statements to be sure allotments to creditors are correct according to your plan agreement. If you have doubts after signing up for a program, contact the creditors directly to be sure they have agreed to the concessions as laid out by the selected agency.

If, for any reason, you don't foresee the ability to make regular payments, then filing for a Chapter 13 or Chapter 7 bankruptcy may be a better option. Once you default on a single payment, you'll lose the benefits and reductions negotiated on your behalf. It is rare that a company will consider reinstatement.

Options for Setting Up Payment Plans

Agencies work in several ways to assist individuals in financial difficulty.
  • Credit Counselors: Credit counselors will provide assistance and management of outstanding bills through consolidation. Your adviser will negotiate with each company to reduce interest fees or eliminate late fees. During the process, you will lose your charge cards, all other accounts will be closed and you may receive a poor rating on your credit report. Once you have reached debt-free status, however, you may be able to reinstate a better credit rating.

  • Debt Settlement Planner: A debt settlement or relief planner will negotiate with creditors to pay off the account for an amount that is less than is owed. This usually requires the debtor to provide one lump sum or a short-term installment plan to pay the agreed amount. If you are able to obtain a loan or can borrow the money, you can possibly arrange for this type of settlement.

At an initial consultation, you'll receive advice as to which is the best method for resolving your financial issues. You should also plan to provide personal information on the following:

  • assets
  • bank statements
  • budget proposal
  • debts
  • employment pay stubs.

You should also map out your future financial goals with regard to major purchases and lifestyle needs.

Most companies can also assist with:

  • budget planning
  • credit report repair
  • mortgage reduction
  • on-site classes for managing debt and building savings.

In order for an outside agency payment plan to be successful, debtors must take extreme steps to resolve their financial problems. That includes sharply reducing expenditures for non-essentials during the management and repayment term.

Also, ongoing counseling is often beneficial, so there is no relapse once the debt program is complete. The rewards are substantial, including a fresh outlook, a clean slate and the chance to rebuild a healthy credit rating.

You may find it tempting or even feasible to try negotiating on your own behalf. However, an outside agency payment plan is often more appealing for creditors. This implies you're serious and committed with a strategy to repay what you owe.

Resources

Bankrate.com (2006). How to Choose a Debt Counselor. Retrieved December 20, 2007, from the Bankrate, Inc. Web site: http://www.bankrate.com/brm/green/debt-consolidation/basics4-2a.asp?caret=20.

Ftc.gov (2005).Knee Deep in Debt. Retrieved December 20, 2007, from the Federal Trade Commission Web site: ttp://www.ftc.gov/bcp/conline/pubs/credit/kneedeep.shtm.
Nolo.com (n.d.).Alternatives to Bankruptcy. Retrieved December 20, 2007, from the Nolo Web site: http://www.nolo.com/printerfriendly.cfm/objectID/A6684FCD-2184-4B52-92FD427529009982/catID/575C3BE9-F0C1-448E-B5F43D22FE36E9F2/213/161/176/ART.