I was listening just now to a radio commercial that claims that if you’re 5000 or more in debt, the company will work with your creditors to lower your interest rate, reduce, even eliminate your debt.
How does this work? What special power do they have that I don’t? The only way I could see them helping me eliminate my debt is by giving me money to help pay it off. If that’s what they’re doing, sweet! But I don’t understand why creditors would agree to reduce my debt. They are owed money. What could this company offer them? Free labor?
Has anyone had experience with these kinds of companies? Are they legit or will they screw you over?
I mean, I’d take the opportunity to reduce my debt, any day. What’s the catch, and is it worth it?
Some debt settlement companies are sponsored by the credit card companies themselves. If your debt is credit card debt, they do have some power to reduce your payments.
Basically if you are debtor with unsecured debt (like credit card debt), bankruptcy is your trump card, because if you declare bankruptcy, that debt becomes a lot less likely to be paid back. Creditors have an interest in making sure that doesn’t happen, and may be willing to settle for a reduction of what they are owed, rather than demanding all of it and then getting none when you go bankrupt.
If you don’t want to go bankrupt, then your and your creditor have something in common and can negotiate for mutual benefit. Of course, if you are so hopelessly in debt that bankruptcy is actually your best option, they are unlikely to encourage that.
The catch is that the credit card company reports to the credit bureau that your card is now a “bad debt”, which adversely affects your credit rating for the next 10 years. However, it won’t hurt your score as badly as bankruptcy would.
I read a report about some of these sorts of companies, where they would promise to sort out your debts, you stop making payments and give all the money to them… then they make minimal or no payments stringing all the other creditors along so they kept getting paid. When the dust settled, they walked away with almost a year’s payments and the customer was left in even worse trouble. A lot of these fly-by-night “debt adjustment” companies popped up during the 2008 melt-down and the contracts sounded fancy but the fine print promised nothing.
Someone up here went to jail for his scam. He was a lawyer, and would go to court and argue that the debt was null and void because of something in the cardmember agreement was not binding. The issue was akin to the sovereign citizen’s claim that the fringe on the flag means the court has no jurisdiction – something that court immediately threw out. Meanwhile, he was being well paid by his clients, some even signing over their houses to him.
He was disbarred (and it takes a hell of a lot to get a lawyer disbarred) and eventually fined and sent to jail for 16 years.