I was listening to the radio earlier when I heard an ad for a credit card debt relief company, that can help people with even the most unbearable of credit card debt get out of it by helping lower what they have to pay (or something like that). How do they do it?
For a lot of them, they charge you a fee, then contact credit card companies or help you contact them yourself to reduce your rates. The credit card company may or may not reduce your rates in exactly the same way as if the debt relief company was not involved. The debt relief company may provide the additional service of collecting your credit card payments from you to pay to the credit card company, which they will do if they feel like it, because they have no contract with the credit card company, and you have no money so what are you going to do about it?
Another thing they’ll do, that you can do yourself is to try to settle for a lower amount. You can can call them up and say “I owe you $10,000, I’d like to settle for $6,000 paid over 3 years.” In order to pull this off, it’s my understanding that you usually have to skip a few months worth of payments and convince them that if they don’t accept this you’ll likely go bankrupt and they’ll get nothing. A credit relief agency may have a working relationship with the major credit card companies and have a bit of leverage or at least have a better idea of what to say to them to get them to come down to something you can afford.
Keep in mind, doing this destroys your credit. Even though the credit card company agrees to it, you’re still not paying the amount you originally borrowed from them and that’ll be reflected on your credit reports for other lenders to see.
Back when Jean Chatzky used to have a call in show on XM she mentioned that a lot of these people work for the major credit card companies so it’s always best to find a non-profit or even free company to deal with. She also had a lot of people calling in saying that people would make payments directly to the agencies for months and months and months only to find out they never dispersed the money (for any number of reasons). You can’t just blindly send them money. You need to make sure they debtors are getting their payments and the first time they don’t you need to call the agency you’re sending money to and get it straightened out right away.
I’ve heard that many debt relief agencies have prenegotiated/canned deals with many creditors. For example, they might have a deal with Citi Bank that any client who approaches the agency and owes money on a Citi credit card will be offered a reduction to 5% APR and a forgiveness of half of all accumulated late, overlimit, and returned payment fees. If you owe money to a creditor where there isn’t a deal, the agency supposedly might not be that eager to help you.
So-called ‘Debt Relief’ companies are bullshit. They don’t have any power or authority to do or negotiate anything that you couldn’t do yourself. And they prey upon distressed, vulnerable, and often ignorant people. There’s no free lunch. They have to get paid for their services too, so by hiring them you’re just incurring more debt!
Defaulting on credit cards will ultimately do one thing- destroy your credit rating. Credit cards are unsecured debt. Credit card companies cannot garnish your wages or seize any assets. They call and send letters, if they get no response they will eventually sell the bad accounts to lower-tier collection agencies for some fraction on the dollar. Then those companies call & call & call and send rude, threatening letters and/or phoney, legalize-looking ‘judgements’ against you etc.
Don’t get me wrong, I’m not advocating being a deadbeat. Having no credit can & will be a huge impediment to anything that requires it (getting a mortgage, buying a car etc.). But the sheriff isn’t going to haul your ass away to debtor’s prison…
This. And everything that followed.
If you’re ass-deep in credit card alligators, you are better off patiently negotiating a settlement agreement with them than hiring any shark to do it for you. They will be hardass and inflexible, but you can eventually reach an agreement.
I don’t know that a negotiated settlement is any worse than having months and months of nonpayment etc. on multiple cards - either way, your credit is screwed for a couple of years. If you’re current and have a decent credit rating, it’s one thing. But if you’re already slashed and bleeding, you’re better off getting the situation under control and ter-mee-nated in as short a time as possible.
Step one is ALWAYS to cut up all the goddamned cards, though. Keep one - ONE - for essential credit needs, if you can. But stop that bleeding first.
I signed up with a debt consolidation agency that is technically legit. I send a lump sum to them every month, which they then distribute to our creditors. But they charge $50 per month and they didn’t negotiate at all with any creditor; I have to pay the same amount as though I were paying the creditor directly. And because I have to rely on them to pay the creditors on time, I get phone calls if they pay late.
Isn’t it illegal to keep calling to collect an outstanding balance if you tell them “I am paying through a debt consolidation agency; do not call me anymore regarding this overdue balance” ?
that’s $50 a month you could be using to pay off your debts
It sounds like you’re paying $50 a month to have someone else send out some checks for you, and hope that they do. If your payoff period is two years (and I am going to guess it’s longer), that’s $1200 that could have gone directly to payments.
“Technically legit” is not the issue here. I think it was a character in *Carnivale *who said, “I’ve never known a legitimate businessman who’d use the word ‘legit.’”
I agree with Hail Ant on this one. Some may even consolidate your debt into one loan that has a smaller monthly payment; however, it costs much more in the long run. Also if the person with the debt doesn’t change their spending habits, they just run into the same problem again.
Note that “non-profit” means nothing for these scammers. One of the most infamous companies that the FTC went after was an alleged non-profit. Most are really for-profit who really just disburse their profits as payouts to the execs/owners.
This is one of the most scam riddled industries out there.
If you want to get some help, start with the NFCC. (It’s recommended by Clark Howard.)
From the NFCC link “As the nation’s largest and longest-serving nonprofit credit counseling organization…”. There was also a thing from Jean Chatzky right on the front page.