Working your way out of debt can be a long, exasperating experience if you try it on your own. You will have to work with all of your creditors to work out a plan to repay your obligations while insuring that the monthly payments you promise them will not add up to more than you can pay. One of the biggest failures for people working their agreements out on their own is not being able to meet their promises and end up in collection or in court anyway.
There are many companies, as well as non-profit agencies, that operate a credit consolidation program, with experienced people that can help individuals and families get out of debt. Typically, this is not an overnight endeavor and these companies are not loan companies or debt consolidation services. They simply work with the amount of money the borrower has available with which to pay on their debts and work with the lenders to accept lower payments, offering an assurance they will receive their money, only over a longer period of time.
Many credit companies are will to work through a credit consolidation services, understanding it is better to receive their money over a longer period of time, rather than have the debtor declare bankruptcy, resulting in the entire loan amount being written off. In other words, they would rather see the money trickle in over a longer period of time than have the debt vanquished by the bankruptcy court.
A person is serious debt trouble can go through a credit consolidation program in which all of their bills are paid by the company offering the program with money paid on a monthly basis by the debtor. The individual will list all of their bills, including the name of the lender as well as the total amount due and the total income available for repayment of the debt. Typically, companies collect about 25 percent of the person's allowable income with which to make payments to their creditors.
With a credit consolidation program, the company then contacts the creditors and works out the payment arrangements with them on the debtor's behalf. Once all of the creditors have agreed to accept the lower payments, when the debtor pays the company, that money is divvied up among the creditors based on a formula pertaining to the amount of the debt owed by each lender. As smaller loan amounts are paid off, the amount paid by the debtor does not go down; rather the additional money is paid to the remaining creditors.
Unlike Chapter 13 bankruptcy that allows debtors to pay off their bills through a court-ordered repayment plan, creditors are under no obligation to participate in the credit consolidation program. Most do so as a means of receiving their money over a longer period of time, knowing that if they refuse to participate the debtor may end up seeking the debt be discharged through bankruptcy. Debtors see these programs as a way of fulfilling their obligations without the need to go through bankruptcy to get through some tough financial times.
