How to Start a Debt Consolidation Service
Debt consolidation services work with clients to improve their financial status and clear their debts.The primary function of these businesses is to assist clients in making timely payments on their debt, and negotiate lower interest rates on that debt on the clients' behalf.
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Instructions
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Decide on the kind of debt consolidation service you would like to establish after conducting industry research online or at the library. For example, determine what kinds of services you do and do not want to offer---whether, for example, you would like to include credit counseling as one of the services that you provide to your clients.
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Become an expert in credit and financial management. Master the techniques of money management by attending seminars, reading related materials and enrolling in financial management courses so you can assist your client in making savvy financial decisions.
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Familiarize yourself with local competitors and assess how you can distinguish your services. Assess whether it may be beneficial to initially partner with an established competitor through franchising, which can help you learn the ropes of the debt consolidation industry.
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Obtain a license, if necessary. Contact your state finance department to learn whether you need a license (some states do not require licenses for debt consolidation services).
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Develop a business plan, and tally up how much it will cost to run your business. It can be helpful to consult a financial adviser during this process to learn about the various ways that one can go about establishing a debt consolidation service. Discuss the amount of capital you will need to raise with the financial adviser by calculating the various costs of running a business. Begin applying for a business loan. After you have secured the necessary capital, set up your office space.
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Attract clients through advertising. Choose a tasteful business name and put up signs that don't indicate that your business is related to debt or financial problems. Use language for your business name and signage that won't make your clients feel anxious about being seen visiting your office.
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Meet with clients and make them feel comfortable. Be approachable, and ask questions that encourages them to openly disclose their financial standing. Avoid making judgmental comments. Once your clients have discussed their finances with you, help them create a monthly budget by asking them to detail their expenses and their debts. Work with your client on trimming expenses and sticking with a budget so that they can channel their funds toward paying off their debts.
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Contact creditors to re-negotiate a lower interest rate on behalf of your client. During this process, it can be helpful to explain your client's financial situation to the creditor, and illustrate that the creditor will be able collect the debt more quickly by lowering your client's interest rate or asking for an extension on the payment terms. Remind the creditor that your client is working with you, a licensed agency to resolve the payments to their company. The creditor will typically compensate a debt collection agency at a rate of about 10 to 15 percent of each client's monthly payments.
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Consolidate the debt for your client. In other words, every month, your client will pay you a lump sum, and you will distribute the funds to your clients' creditors. Determine your client's monthly payments by adding up your client's debts, computing this figure according to the new reduced interest rates you have secured for your client, and dividing the total by the number of months that your client wants to spend paying back their debt.
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Follow up with your clients. Once payments are being made, check in with your client every three months to ensure that they are following the financial plan that you helped them to set up. Help them make adjustments to their budget if they continue to accrue more debt. Verify that their monthly payments are on track.
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Improve your services and seek a rating from the Better Business Bureau (BBB). The BBB gathers information on the reliability and competence of businesses, and consumers frequently rely on this information when making decisions about which services to use. Maintaining a high standard of service will likely result in higher ratings from the BBB, which will give you additional leverage as you re-negotiate interest rates with credit companies. A higher BBB ration will also help attract new clients.
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Tips & Warnings
Since debt consolidation is a service enterprise, you will need to develop people skills since you will be working with both clients and their creditors.
Develop your negotiating skills. You need to learn how to strike better deals on their debt payments on behalf of your clients, including requests to lower the interest rates that are owed to creditors.
Keep meticulous bookkeeping records. This type of business invites scrutiny from clients and authorities since you will be working with numerous financial accounts on a daily basis.
