This is a different kind of question than the debt consolidation post already in this forum…
I had some financial troubles last year, so I set up some bills to be paid through a debt management firm to avoid complete financial failure. I have since paid them off and I realize that now I have just one creditor being paid-- CitiBank, to whom I pay $48/month. My total payment, however is $73- $25 goes to the Debt management firm as a “monthly contribution”. I have asked them about reducing or abolishing this, but they tell me that I agreed to it when I first set up the account (which I did, at the tiem it was a bargain).
I asked CitiBank about just cutting it off with them and making the $48/month, or even more, directly to them, but they said that if I did, my account would be in default and the entire balance would be due. Or, at the very least, my interest rate would skyrocket back up in the twenties, and I would accrue fees not removed by the debt company.
Do I have any option here? I hate having 33% of my payment go to a company that is doing something I could do in 10 seconds every month.
This last one is just a hypothetical… theoretically, what would happen if I just didn’t pay CitiBank the $2300 I owe them? How far would it go?
Well, in some states you can cancel your contract with the debt management company. In Michigan, for example, you can cancel the contract simply by not making a payment for 60 days. If you do so, the debt management company can charge you a $25 cancellation fee, and you are done with them.
But that leaves you to cut your own deal with Citi. Most non-profit debt management companies are favored by creditors. In fact, they frequently get a “fair share” payment from the creditors. So the creditor may be unwilling to cut them out. If so, you may be out of luck. You may have to pay Citi off at whatever rate they can legally charge you, or worse, you may have to pay the whole debt immediately.
They will either:
Do nothing but report the debt to credit reporting agencies, which will screw up your credit for years.
Contact you and demand payment.
Send the debt to a collection agency, which will do 1 and 2 above.
Turn the debt over to a lawyer, who will sue you, get a judgment that includes fees and costs, and then attempt to collect the judgment. The lawyer can try to garnish your wages and take your assets to satisfy the debt.
All of these steps can be prevented by filing for bankruptcy, but that is probably not a good idea if you only owe $2300. You could contact Citibank yourself and offer to pay them less than the full amount. They will often settle, but they may not cooperate because the debt management company is getting ousted. If you make them an offer start at around 40%. And ask them to report the settlement as “paid in full.”
I would be happy to provide you with additional information offline if you are interested. Just e-mail me.
I have since paid them off and I realize that now I have just one creditor being paid-- CitiBank, to whom I pay $48/month. My total payment, however is $73- $25 goes to the Debt management firm as a “monthly contribution”. I have asked them about reducing or abolishing this, but they tell me that I agreed to it when I first set up the account (which I did, at the tiem it was a bargain).