A lot of people are of the opinion that the term debt default can apply to any and every kind of financial situation. This is not true. Debt defaults can only arise when debtors fail to timely make repayment of their liabilities. In other words, the very essence of debt defaults is avoidance.
A debtor fails to comply with the terms of agreement regarding repayment of his debt if he fails to make timely payment. The failure to comply can be in the form of inability to repay or noncompliance with the terms and conditions of agreement. This is where the term debt default occurs. In most of the cases, these financial institutions pass on the entire liability of the debtors to third parties. These parties then take over the responsibility of making debt repayments.
Many borrowers do not want to take this step. For them, there are two options available. They can choose either to go for credit counseling services offered by various non-profit institutions or they can opt for bankruptcy. Credit counseling services are often non-profit institutions. However, they charge a nominal fee from the debtors for providing their service.
There are certain institutions that are specifically meant to help borrowers go about the process of debt management. These institutions can be banks, credit unions or other financial institutions. They offer various services including debt negotiation, debt consolidation and insolvency. Their services however are best suited to help borrowers going through a serious financial crisis.
One of the primary reasons for debtors’ failure to comply with the terms and conditions of agreement regarding repayment of their debt is that they lack the necessary understanding regarding the nature of the contract that they signed with the credit card issuer. For example, most people are unaware that the debt contract contains a number of clauses. Some of these clauses pertain to the rights of the debtors vis-a-vis the creditors. There are also clauses related to the rights of the creditors vis-a-vis the debtors, etc.
There are also provisions which allow the debtors to seek court assistance in case there is no chance of amicable settlement. Under such provisions, the debtors are allowed to hire a lawyer who will attempt to recover their money. This is an obvious advantage of debt default. However, the creditors don’t exactly relish this arrangement.
Another important provision of debt relief programs is the stimulus package. The federal government, in order to bail out the failing financial system, granted huge funds to all credit card companies. Most of these companies incurred heavy losses when they offered credit cards to their debtors. However, they were granted the go ahead by the government in order to encourage debt repayment.
The stimulus package enabled the credit card issuers to write off some of their debts in exchange of lower interest rates. This helped debtors to save a lot of money. They could even repay their debts in a lump sum amount or in easy installments. This was very helpful for debtors as now they don’t need to pay huge sums to the institutions every month. This is exactly what debt default is all about.
Debt consolidation is another option for debtors who are struggling to get out of debt. Through this method, debtors can manage to pay one large installment instead of paying separate installments for each credit. Credit consolidation institution can also give advice to debtors on how to manage their finances in the future. They can advise the debtors on how to handle their finances in the future.
Now, debtors can also seek help from non-profit organizations. These organizations can help in arranging debt repayment plans for debtors. They can also arrange debt consolidation loans to help debtors manage their finance in future.
Credit counseling is yet another option available for debtors who are struggling to get out of debt. Through this program, debtors can consolidate their multiple unsecured loans into a single secured loan. The credit counselor can negotiate with the institutions on behalf of debtors. This way they can reduce their interests rate and in turn lower down the monthly payments. Credit counseling institutions are becoming increasingly popular because they provide financial advice and various programs to debtors.