I’m sure we’ve all heard the ads on TV, radio, and junk mail. “We’ll pay off your debt for less than what you owe”. And, “your monthly payment will be half of what it is now.”
So, what’s the catch with these offers? Are any of them worthwhile? Will it ruin your credit, akin to declaring bankruptcy? Last, how do you shop around to find the good ones (if they exist) from the bad ones?
Do any SDopers have first-hand experiences with these deals? Good or bad?
The catch is that for a fee, they’ll negotiate a write-off with creditors. This goes on your credit report as a delinquency, which hammers it hard. You could do that yourself and save yourself the fee. Or you can declare bankruptcy and get out of debt entirely.
The catch is worse - in order to negotiate a settlement - you have to be significantly behind and most of them will not even attempt it should the creditor decide to sue.
They are a scam - if you need help - talk to an attorney about bankruptcy options.
Unless, of course, you’re my age and the majority of your debt is student loans, which can’t be written off by declaring bankruptcy.
This is just a guess, because I don’t know a lot about this situation, but back when the housing market was good I thought a big part of those ads was people claiming they would take your 20% credit card bills and consolidate them into a home equity loan at closer to 5-7%. The debt itself didn’t go away it was just transferred to a debt with a lower interest rate.
The commercials you see on TV are for-profit “Credit Counseling” services. They charge a monthly fee, and take your payments and set them aside until a decent amount has accumulated, and then they negotiate to the debt-holders for the reduced payoff. And you’ll take a massive hit to your credit report.
There are also NON-profit “Credit Counseling” services. These are paid by the credit card companies, and they also charge a monthly fee, albeit a lower one than the above-mentioned guys. They negotiate with your debt-holders to accept a lower interest rate. They take your monthly payments and send them to the creditors FOR you. It can take quite a while to pay off your balance, but you stay on good terms with everybody.
It takes time, and sticking to a budget, which is painful. But it works. I’ve used it, and I recommend it.
And they won’t handle student loan debt, unfortunately.
~VOW
As a general rule, isn’t it true that any ad promising something for nothing or something that is too good to be true or just something wonderful is almost certainly a real scam.
As a general rule, isn’t it best to just avoid those ads completely?
I am on a non-profit credit counseling service. They charge $50/month for the service. They were supposed to get my interest rates down on my credit cards so I could pay them off faster, and I send them one lump payment, which they then monthly distribute to my creditors. But what they are paying is exactly what I’d be paying if I were doing it myself.
Every credit account I had was frozen so we’re screwed when we have an emergency (and we’ve been screwed a few times now and had to borrow money which we can’t pay back). We are not on good terms with any of them; they hit my credit report hard too. The debt is not getting paid any faster, or for any less money, than if we were doing it ourselves.
The credit accounts are frozen because you are typically in hock up to your eyeballs and need to pay them OFF.
It’s true that it can be negotiated by you, and you can skip the middleman and handle it all yourself. But most people don’t know the first thing about negotiating the lower interest rate: generally they are in a position where every communication with the credit card folks is one where they are against the wall with the firing squad chambering rounds. The card companies keep jacking up their interest rates as you fall further and further behind, until you are in the 30% range or higher.
The credit counseling folks got our interest rate down to 9.75% and a payment that was manageable but still stiff. And the card companies were forbidden to call us regarding the debt.
We had one credit card for emergencies that was not included in the plan.
It worked for us. We were by no means happy with the situation, but it was better than it had been before we got the help. And we DID live on a shoestring for several years until the balances had been paid.
~VOW
The worst of the bunch are usually the so-called non-profits. There have been several scandals over the years about some of these operations. Taking people’s money and not turning it over to creditors, paying the execs amazingly high salaries. (Which is why they get to call themselves non-profit. All the profit goes to the people running it in the form of salary.) They also sometimes imply they are run by/part of the credit card companies.
“Non-profit” doesn’t mean a thing in terms of reliability. Be very, very wary.
yep -
We should have left a card out; but I didn’t read the fine print at the time. We’ll likely be paying on this for several more years as well, because we added medical bills to it last year. Ours is legit; they pay the creditors every month and were recommended by the unemployment office.