Neck deep in debt? Here’s how some companies are helping habitual borrowers consolidate their loans

• A debt resolution company offers comprehensive solutions to help individuals overcome their debt burdens.
• The primary goal of a debt counsellor is to equip individuals with the knowledge, tools and support necessary to navigate the challenges of debt resolution.
• It is essential to conduct thorough research and compare the fees of different debt resolution companies before making a decision.

Dharshan Kumar S, a 30-year old banker, had a personal loan on his credit card and was paying his EMIs on time. But during the lockdown, the family income went down and he could not pay the EMIs, or equated monthly instalments. With his loan and credit card debt, his outstanding dues rode up to ₹4 lakh and he was struggling to repay.

There were creditors coming home and harassing him. That’s when he came across the contact of a debt resolution company on Facebook and approached them for help.

Options to deal with outstanding debt

In today's world, loans have become an essential part of our lives, and many individuals find themselves managing multiple debts simultaneously. If you are facing difficulties due to excessive debt, the initial crucial step is to assess and understand the nature of your debts.

“It is crucial to identify high-cost debts such as credit cards, and app loans with interest rates as high as 40-48%, personal loans, and accordingly decide where to concentrate your repayment efforts first. The longer one keeps loans open, the more interest one has to pay overtime, and it can eventually spiral into a toxic trap that will lead to delinquency if not repaid on time,” says Ritesh Srivastava, founder and chief executive officer, FREED, a debt relief platform.

“There are several options available for individuals who are struggling with outstanding debt,” says Manavjeet Singh, managing director & CEO, CLXNS, a debt collection platform for banks. Debt consolidation, debt counselling, and debt resolution are some of the options.

Should you approach a debt resolution platform?

“When debt has gone out of hand, one should take help from professionals for debt management. While debt restructuring and subsequent resolution will need traditional finance experts, a money coach would be great to help you with behavioural changes,” says Renu Maheswari, co-founder and principal advisor, Finscholarz Wealth Managers. “Nothing comes for free, so weigh the pros and cons and use debt resolution as the last resort,” she adds.

How does debt resolution work?

“A debt resolution company offers comprehensive solutions to help individuals overcome their debt burdens. These companies provide services such as debt settlement, consolidation, and elimination. Debt settlement involves implementing financial discipline by setting aside funds for loan repayment in a trust account and thereafter negotiating with the creditors,” says Srivastava.

On the other hand, debt consolidation focuses on combining multiple high-cost loans into a single loan. By doing so, individuals can benefit from a reduced interest rate and an extended repayment period. It is helpful for borrowers who are currently repaying their debt but are over-leveraged.

The importance of debt counselling

Debt counselling services employ a systematic approach to help individuals burdened by debt achieve a debt-free life. These services involve offering educational resources, guidance on budgeting, and utilising tools and strategies to reduce and eliminate debt. The main objective is to foster financial discipline in borrowers and provide ongoing support throughout the debt relief process, all while avoiding excessive upfront costs.

“The primary goal of a debt counsellor is to equip individuals with the knowledge, tools and support necessary to navigate the challenges of debt resolution. By providing financial education, budgeting assistance, and advocating for their clients' interests, these services empower individuals to take control of their financial situation and work towards achieving freedom from debt,” says Srivastava.

The fees associated with debt counselling resolution services in India can vary based on the specific services offered and the debt resolution company selected. Many companies offer a free initial consultation, after which fees may be charged for ongoing services.

This can be a percentage of the total debt, in case the debt issue is resolved, or subscription fees for other services such as counselling, support for creditor harassment, budgeting. “It is important to carefully research and compare the fees of different debt resolution companies before choosing one,” says Singh.

Kumar was counselled on his debt and how he could handle his creditors. Now he has to pay a consolidated amount every month to his debtors and is looking to be debt free soon.