Everywhere you look, you see someone offering credit help. They say they can lower your payments, take off 50% off the principal, but I don’t believe any of it. I live in California and I get phone calls every day on helping me with my bills. How do they get away with this?
The creditors figure they are better off getting something rather than nothing at all. These debt consolidation places will contact your creditors and ask them to reduce the amount of debt that you owe in exchange for the certainity of you paying them back. For example, if you’ve owed them 1000 for a year and have paid very little/none, the creditors figure a promise to pay them $500 is better than getting nothing.
Also I believe (but am not 100% certain) that when a company sends your debt to a collection agency, they are actually selling your debt to the collection agency for a fraction of what you owe. If you owe $1000, the collection agency “buys” that debt for, say, $300. The original company at least gets some of their money back. Anything over $300 that the collection agency gets from you is profit. I made up the amounts, but that’s my understanding of the way collection agencies work. A debt consolidation service might contact the collection agencies and offer $400 to pay off your debt. The consolidation co. tells you that they’ll settle your debt for $500. The original company gets $300 of their money back rather than the nothing you’ve been paying, the collection and the consolidation companies each make $100, and you pay half what you owed (but your credit still takes a hit).
Some companies that promise to settle the debts for low amounts are garbage. They ask you to stop paying on your debts. They ask you to send them money monthly, which includes some fee for the “service.” Every month, you send them money. They take a fee and put the rest in your account in trust for you. Your account balance with them grows over time. They then use that money in trust to offer it up to your creditors in settlement of the debts.
Here’s what they don’t really tell you …
As they take your money every month, they aren’t providing you with any service except taking your money and saving it for you. Then, when the balance in your account gets up to about half of your debt, they call the creditors and attempt to settle for 50% of the debt.
Sometimes creditors will make that kind of deal because it’s better to get something than nothing. Sometimes they won’t make that kind of deal and you have to save more to get up to a level the creditors may accept in settlement. Some creditors apparently don’t want to talk to these consolidation outfits.
Meanwhile, there’s noting whatsoever from creditors trashing your credit report and suing you in an effort to collect. The debt negotiators aren’t attorneys, so they can’t help you respond to a collection lawsuit or act on your behalf in that regard. So, you may end up getting screwed with judgments against you or needing to hire an attorney on top of hiring the debt company.
Further, you might be better off filing bankruptcy instead of going through all that crap. If you are going to trash your credit anyway, it may be better to just wipe out the debts in bankruptcy, which will also trash your credit but may have the benefit of wiping out the debts.
However, if you don’t want to file for bankruptcy and you are willing to assume the risk of being sued and trashing your credit, then just save your money in a savings account *yourself *and negotiate the debts *yourself *once you have saved enough to make an enticing offer to your creditors. Why pay some company to save your money for you and just sit on it while the balance builds up? Open a savings account yourself and get to it.
nevermind
All the settlement company really wants to tell people up front is “send us your money and we’ll negotiate your debts for 50%.”
… and you blindly send money into these settlement companies every month for a year and then you get served with a collection summons from court. Then you call up the settlement company and wonder why you got a summons because you thought they were settling your debts for you. Then they tell you they haven’t settled the debts yet. Then you ask for help with the summons and they say they aren’t attorneys and can’t help you with that. Then, if you have a written contract with the settlement outfit, you actually read it and it says somewhere in the fine print that you assume the risk of being sued by creditors and having your credit trashed while the negotiation process is pending.
There are basically two kinds of debt collectors.
One is hired as an agent of the original creditor to attempt to collect the debt on behalf of the original creditor. The original creditor does not relinquish its right to collect the debt. Any money that comes in settlement will go to pay the original creditor with probably some percentage as a collection fee to the debt collector.
The other is an assignee of the debt. In other words, the original creditor “charges off” the debt as a loss for tax purposes and sells the right to collect the debt to a debt collector for pennies on the dollar. The debt collector then “owns” that right and attempts to collect on it as the new owner of the right to collect debt. Any amount that comes in as settlement goes only into the pocket of the assignee.
Since an assignee bought the right to collect on the cheap, any amount it collects from you over the price it paid the original creditor is profit. Also, it is harder for an assignee to actually collect on a debt than it is for an original creditor to collect. So, you can usually get a better deal out of this kind of debt collector than the other kind.
You can negotiate debt on your own behalf. The problem is creditors aren’t going to be nice about it. A creditor has to REALLY believe when you hang up the phone your next call is going to be to a bankruptcy lawyer.
The problem is also the way credit is set up. Credit counseling is often only one step above a bankruptcy, so what’s the point? OK if you have a car or house, you may need to, but the banks have become very malicious since the new rules kicked in.
Last year at this time I didn’t have ONE card with a rate higher than 1.9%. Now my lowest rate is 13.99%
You have to show the credit card companies or rather the banks, that you mean business. Both to the effect you are going to honor your debt and also to the fact that if you don’t get help you will default, before you can get any real help from them