I’m not familiar with how debt consolidation works to help someone out, but I figured there had to be at least a couple people in a similar line of work and those who’ve done it among the dopers. To fill in, she has several debts built up from student loans, medical bills, etc. Some she’s paying a large amount towards each month and are in good standing. Others have been deliquent for an extended period of time (ie, four or five years) and she hasn’t been contacted by them.
One bit of advice that she received was that very old debt should be ignored because starting to pay off old debt puts it back on your credit and then you have to pay collection fees, late penalties, interest, etc. At the same time, that last thing she would need is old debt that she’d basically written off come up to bite her.
What I’ve advised is that she should contact one of debt consolidation companies and see a financial advisor. The problem is, I’ve never used one, and of the couple of people I’ve known who have, they got scammed. Also, I only have an intuitive understanding of how it works, so I’m not sure I can explain the merits and demerits of using such a service. So…
Can anyone help give a better explanation on how it works? It’s my understanding that they make their money off of the new loan they give you and not off of fees and such. IME my other friends got scammed on these fees. Can anyone explain if the advice she received is good for these old loans, or is it something she should be contacting a financial advisor and/or lawyer about? For people that have used these sorts of services or are in the industry, can you give any advice about what services are good and which ones she should stay away from?
Specifically with reference to the deliquent debts, what can she expect to have to pay? Apparently in the last several years the amount she owes has quadrupled. She is hoping to be able to settle the debt for a fraction of what is owed now. I’m under the impression that these services help one negotiate with the debtors to reduce the amount owed. Can anyone explain how this works?
**I’m unsure if this is more GQ or IMHO material, but I’m leaning to this forum because of the factual part and I thought the responses might be more useful. But it wouldn’t hurt my feelings if you feel it’s better suited to IMHO.
You got debts, folks you owe don’t like dealing with your payments. Some corporation has money, they need to invest it. They buy your debts from your creditors at a discount, perhaps a fairly steep discount if you have serious money troubles. They make a new deal with you, putting all your debts into one principle amount, and charging you a somewhat reasonable percentage of the original amount that you owe. (The deal for them is that it is a rate fairly close to armed robbery for the amount they actually paid for your debts.)
You have lower payments, and don’t have the intelligence to multiply your monthly bill times the term of your now very long term of payment. You happily pay them this amount until you go broke again, and then they sell your debt to some one with better lawyers, and a greater willingness to sue.
There is a lot to cover in your post but first and foremost, know your state’s statute of limitations on debt. Most important is YES, if a debt is beyond the state statute AND you agree to a payment… even an itsy-bitsy one in writing, then you bring it back to life for a new period.
Seven years from last activity is the limit on negative credit reporting. Then it falls off. This has nothing to do with the state statute of collectability.
Plus, this is something that no website bothers to teach you… some entities do not report to the bureaus. Get a copy of your credit report and you will see that some are just plain not there on any of the big three credit reports.
The statute of limitations point is huge. Here’s a chart which gives an idea of the parameters. Notice that the limitation in Virginia for credit card debts is three years.
IOW, yeah, your friend needs a lawyer. Or at least a credit counselor not paid for by the credit industry.
I thought I’d read that the reporting period was seven years from the Date of First Delinquency. i.e. if the first missed payment was Jan 30, 2001 than it would fall off Jan 30, 2008?
If they are trying to get you to take out another loan, they are a debt consolidator. Everyone I know who has used one of them has been scammed. Avoid them!
Instead, seek a debt counseling service. Look for a non-profit one. That may mean you have to pay them for their service. But it should be an hourly rate, like any other counselor. Not anything based on a percentage of your debt or anything like that. You might be able to find one that is entirely charitable and doesn’t charge you anything. But do ask specifically how they are getting paid.
Generally, these services do the following:
contact your creditors, and get them to stop adding to your debt via interest, service fees, etc.
arrange a payment plan with your creditors to pay off your debts. (Often this will include getting them to agree to a reduced payoff amount. Sometimes the service will start out having you pay them, and they split the payment up among your creditors.)
counseling you, to make you see how you got into such debt in the first place, and how to change your habits to prevent it in the future.
Thanks for the responses. One thing I should have mentioned is that she currently lives in DC, which is where she lived when she incurred most of this debt, though will be moving out of DC soon. According to the chart that PBear posted, it looks like at least some of these debts are beyond the statute of limitations.
I’m glad I posted here, because it looks like maybe the whole debt consolidation was a bad idea on my part. :o
I’ll have her read over the responses and see what she says.