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Shocking Facts - What Debt Settlement Companies Dont Tell You
If youre thinking about using a debt consolidation or debt settlement service to help you get out of debt faster and save money on your monthly payments, make sure you do your homework before choosing a company. There are definitely shams and scams out there.
First let me say that debt consolidation is *not* the same as debt settlement/negotiation, which most people dont realize.
Debt settlement companies charge hundreds of dollars as an initial "admin fee" to set up your account, plus a monthly service fee. The fees vary depending on the company and the amount of your debts.
Such companies take your money every month, but dont make monthly payments to your creditors! Instead, they put it in a trust account, negotiate your debts with your creditors, then make a lump-sum payment when theres enough in your account to pay a creditor in full.
That can take *years* depending on the amount of debt you have with each creditor. Meanwhile, you can be sued by your creditors and your wages can be garnished! Or just dont make payments to your creditors. Youll end up in the same spot without paying someone to help you get there!
Settlement companies dont ask your creditors to stop all interest, late fees and overlimit fees from accruing. That means while the negotiations are ongoing, your bills will continue to grow! So if youre sued and a judgement is brought against you, youll owe more money than before!
And shoddy companies, which there are alot of, dont tell you *any* of this up front. I call it "getting permission by ommission" because they simply dont tell you how their program works *before* you sign an agreement with them. Or after, for that matter. But if you ask the right questions, eventually youll figure it out. Or when the crap hits the fan. Whichever comes first.
Let me give you an example of how debt settlement works.
Lets say you have $20,000 in unsecured credit card debt. You owe $10,000 to one credit card company, $6,000 to another and $4,000 to a third. You agree to a 5 year plan where you pay $250 a month to the settlement company. After all, $250 a month for 60 months is only $15,000, so youre saving $5,000 and youll be debt-free in 5 years, right
The admin fee will cost you $750. Your first 3 monthly payments go towards that and nothing gets put into your trust account until your 4th month.
The settlement company keeps $50 of your $250 payment each month for the service fee. That means $200 a month is being added to your trust account.
Most debt settlement companies claim to be able to negotiate your debt for about 50% of what you owe. So lets use the lowest credit card debt as an example.
If you owe $4,000 and your creditor agrees to accept $2,000 as payment in full, it will take 10 months at $200 per month to have enough in your trust account to pay off just that one credit card.
But remember, your first 3 payments to the settlement company only paid the admin fee. That means your first credit card settlement is 14 months *after* you started sending them money.
So whats the problem Its simple. Your creditor wont agree to accept half of your actual debt unless, or until, it can be paid in full. Otherwise, youre expected to make your normal monthly payments.
Since you dont have $2,000 in your trust account, and you wont have it until more than a year after you stopped paying your creditor directly, theyll probably take you to court and request that your wages be garnished long before you have that $2,000 built up.
And what about your other creditors Well, theyll be waiting even longer to get their money from the settlement company. The $6,000 debt will take 15 *more* months to pay off, assuming your creditor waits that long and agrees to 50%. And that $10,000 bill You do the math.
On the other hand, if you signed up for a 3 year plan with the settlement company, your debts would be paid off sooner. But, the question is, will your creditors wait that long Probably not.
The facts are, you can negotiate with your creditors yourself. Most will agree to take a smaller monthly payment from you and stop all interest and fees from accruing. And, of course, youll save thousands of dollars in fees to a settlement company.
Before signing up for any service, please be sure you check out the company thoroughly. And dont let the words "non-profit" fool you either. Alot of debt settlement companies claim to be non-profit.
Going back to the example above, if you pay them $15,000 over a 5 year time frame and they settle your debts at half of what you owed, theyll make $5,000 from you. Id call that a profit, especially since they might not have actually helped you in any way.
Most companies will allow you to cancel your account and get a refund of what youve paid, less the non-refundable admin fee and the monthly service fees. If you feel youve been mislead about their program, dont hesitate to argue til the cows come home. File a complaint with the Better Business Bureau or hire an attorney if you feel youre getting nowhere.
You can visit the Better Business Bureaus website http://www.bbb.org and find reports on hundreds of companies. Heres a small listing of companies that have poor reputations with the BBB:
National Consumer Debt Council LLC - Irvine, CA A.K.A. NCDC, United Consumer Law Group
Financial Rescue Services - Burbank, CA
Debt Legal Services - Anaheim, CA
American Debt Relief - Los Angeles, CA A.K.A. A M Debt, American Debts Relief, Debt Relief
Please be very cautious when choosing a debt help company and ask lots of questions before agreeing to anything. If you find theyre evading your questions, run fast and run far. There are reputable companies out there, so keep looking until you find one.
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