If you’re thinking about using a debt consolidation service debt settlement or to help get out of debt faster and save money on your monthly payments, make sure to do your homework before choosing a company. Definitely there are frauds and scams out there.
First let me say that debt consolidation has not the same as negotiating the settlement of the debt that most people do not realize.
Business debt settlement charge hundreds of dollars as a down payment “admin” to configure your account, plus a monthly service fee. Rates vary depending on the company and the amount of their debts.
These companies take your money every month, but not make monthly payments to your creditors! Instead, they put in a trust account, negotiate your debts with your creditors, then make a lump-sum payment when there is enough money in your account to pay a creditor in full.
That can take * years * depending on the amount of debt to each creditor. Meanwhile, you can be sued by its creditors and wages can be garnished? (Or not making payments to your creditors. Will end in the same place without having to pay someone to help you get there!)
Settlement companies do not ask your creditors to stop all interest, fees and overlimit fees from accruing. That means that while negotiations are ongoing, their accounts will continue to grow! So if you’re sued and a verdict against you, you owe more money than before!
And shoddy companies, which are a lot of, do not tell you * any * of this up front. I call it “getting permission by omission” because they simply do not tell us how their program works * before * you sign an agreement with them. Or after, for that matter. But if the right questions, eventually you find out. (Or when the shit hits the fan. What comes first).
Let me give an example of how the debt settlement.
Say you have $ 20,000 in credit card debt unsecured. You need $ 10,000 to a credit card company, $ 6,000 and another $ 4,000 to a third party. 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 you’re saving $ 5,000 and be debt free in 5 years, right?)
The administration fee will cost $ 750. The first 3 monthly payments that go to and nothing is put in his trust account until the 4th month.
The settlement company keeps $ 50 of your payment of $ 250 each month for the service fee. That means $ 200 a month has been added to your escrow account.
Most companies’ debt claims to be able to negotiate its debt by approximately 50% of what you owe. So let’s use more credit card debt as an example.
If you owe $ 4,000 and your creditor agrees to receive $ 2000 as payment in full, it will take 10 months at $ 200 per month to have enough in your escrowaccount to pay only a credit card.
But remember, the first 3 payments to the settlement company only paid the administration fee. This means that your first credit card settlement is 14 months * after * they began sending money.
So what’s the problem? It’s simple. Your creditors will not agree to accept half its actual debt unless, or until they can be paid in full. Otherwise, you are expected to make their normal monthly payments.
Since you do not have $ 2,000 in your trust account, and will not until more than a year after he stopped paying your creditor directly, they’ll probably take to court and ask that their wages be garnished long before $ 2,000 that have accumulated.
What about your other creditors? Well, we’ll be waiting longer to receive their money from the settlement company. The $ 6,000 debt will take 15 * more * months to pay, assuming your creditor expects long and agrees to 50%. And that $ 10,000 bill? Do the math.
Moreover, when you subscribe to a plan of 3 years with the company agreement, their debts would be paid faster. But the question is, will your creditors wait that long? Probably not.
The facts are, you can negotiate with your creditors yourself. Most would agree to take a small monthly payment from you and stop all interest and fees from accruing. And, of course, will save thousands of dollars in fees to a company in liquidation.
Before signing up for any service, please make sure you check out the company thoroughly. And do not let the word “profit” fool you. A lot of debt settlement companies claim to be nonprofit.
Returning to the example above, if you pay $ 15,000 in a frame of 5 years time and they settle your debts at half of what was, will the $ 5,000 you. I would call it a benefit, especially because they might not have helped in some way.