There are a number of companies that offer what is referred to as "debt advocate" services. If you are in debt, and thinking about seeking assistance from one of these organizations, it is important to understand what it is they do and what kind of help you can realistically expect to receive.
About Consumer Debt Advocates
Companies offering debt advocate services work with individuals or businesses who are in significant debt that becomes unmanageable. Problems dealing with debt could come about as a result of overspending, job loss, a reduction in cash flow, and other possible circumstances.
While some of these organizations market themselves as providing a magic way to make your debt go away, this is not an accurate description at all. If you choose to work with a debt advocate company, you are making a decision to put all or part of the debt you are dealing with into a debt relief program.
When you do this, you'll sign a limited power of attorney document giving the company the right to speak to your creditors on your behalf. A company representative will then communicate with your creditors and attempt to negotiate with them on your behalf. The goal of the negation is to get each creditor to accept less that you owe as payment in full for your financial obligation and to reach an agreement on repayment terms that you will be able to manage.
While this is going on, you will likely continue to receive collections calls from creditors. Creditors are going to do everything possible to get you to pay your outstanding balances, so they are not automatically going to stop calling you as soon as you hire someone to handle negotiations on your behalf. They'll speak to the debt advocate firm, but your phone is going to continue to ring as well, at least until a settlement is reached.
At the time you enter a debt relief program, you will need to make a commitment for an amount of money that you will be able to pay each month. This amount will cover the consumer debt advocate firm's fee and go toward paying down your debts once the company reaches an agreement with each of your creditors. You will be asked to set up a monthly draft from your bank account for this amount. During the time you are in the program, additional payments may need to be made as creditors agree to repayment or settlement terms.
Not all of the money you pay into the program will be used each month. The idea is to allow you to build up a balance in your account that can be used to settle debts in full when a creditor is willing to settle debt for less than you owe.
Debt Advocate Fees
An important point to note is that not all of the money you pay will go toward reducing your debt. Debt advocate companies are businesses, and therefore charge a fee for their services, and it can be a significant sum. This is true whether you are dealing with an attorney who offers debt settlement services, or a corporate or nonprofit debt settlement service provider.
If you are considering entering a debt consolidation program, review the contract you are being asked to sign very closely so that you are absolutely certain that you understand and are comfortable with the fee structure.
While the fee structure may vary from one consumer deft relief company to another, you can generally expect to pay fees that include:
- An initial account setup fee
- A percentage of the total outstanding balance of all debt in your program on a monthly basis
- A percentage of the amount the amount your debt is reduced by if a creditor settles for less than you owe
- A monthly check writing fee for each creditor who is paid through your program
- NSF charges if one of your monthly payments ever does not clear
Should You Seek Debt Relief?
Only you can decide whether or not the services provided by consumer debt advocates are in your best interest. It is essential to take the time to educate yourself about exactly what you are getting into when you enlist the services of this type of company rather than making a fast, emotional decision based on the fear and stress that can go hand-in-hand with dealing with debt.
It's important to note that not all debt relief companies are the same. While some are likely to deliver as promised, others may well be scams. Before signing a contract, thoroughly review the terms of the agreement and ask the firm to provide you with references of currents or past clients who are willing to speak with you about what their experiences have been like. If you decide to go this route, make sure you choose a reputable company and that you have realistic expectations about how the company can assist you and how much it will cost you.