Debt Settlement Companies Dont Tell You

Shocking Facts - What Debt Settlement Companies Don't Tell

You

 by: Denise Hall

If you're thinking about using a debt consolidation or debt settlement

service to help you get out of debt faster and save money on your monthly

payments, make sure you do your homework before choosing a company. There are

definitely shams and scams out there.

First let me say that debt consolidation is *not* the same as debt

settlement/negotiation, which most people don't realize.

Debt settlement companies charge hundreds of dollars as an initial "admin

fee" to set up your account, plus a monthly service fee. The fees vary depending

on the company and the amount of your debts.

Such companies take your money every month, but don't make monthly

payments to your creditors! Instead, they put it in a trust account, negotiate

your debts with your creditors, then make a lump-sum payment when there's enough

in your account to pay a creditor in full.

That can take *years* depending on the amount of debt you have with each

creditor. Meanwhile, you can be sued by your creditors and your wages can be

garnished! (Or just don't make payments to your creditors. You'll end up in the

same spot without paying someone to help you get there!)

Settlement companies don't ask your creditors to stop all interest, late

fees and overlimit fees from accruing. That means while the negotiations are

ongoing, your bills will continue to grow! So if you're sued and a judgement is

brought against you, you'll owe more money than before!

And shoddy companies, which there are alot of, don't tell you *any* of

this up front. I call it "getting permission by ommission" because they simply

don't tell you how their program works *before* you sign an agreement with them.

Or after, for that matter. But if you ask the right questions, eventually you'll

figure it out. (Or when the crap hits the fan. Whichever comes first.)

Let me give you an example of how debt settlement works.

Let's say you have $20,000 in unsecured credit card debt. You owe $10,000

to one credit card company, $6,000 to another and $4,000 to a third. You agree

to a 5 year plan where you pay $250 a month to the settlement company. (After

all, $250 a month for 60 months is only $15,000, so you're saving $5,000 and

you'll be debt-free in 5 years, right?)

The admin fee will cost you $750. Your first 3 monthly payments go towards

that and nothing gets put into your trust account until your 4th month.

The settlement company keeps $50 of your $250 payment each month for the

service fee. That means $200 a month is being added to your trust account.

Most debt settlement companies claim to be able to negotiate your debt for

about 50% of what you owe. So let's use the lowest credit card debt as an

example.

If you owe $4,000 and your creditor agrees to accept $2,000 as payment in

full, it will take 10 months at $200 per month to have enough in your trust

account to pay off just that one credit card.

But remember, your first 3 payments to the settlement company only paid

the admin fee. That means your first credit card settlement is 14 months *after*

you started sending them money.

So what's the problem? It's simple. Your creditor won't agree to accept

half of your actual debt unless, or until, it can be paid in full. Otherwise,

you're expected to make your normal monthly payments.

Since you don't have $2,000 in your trust account, and you won't have it

until more than a year after you stopped paying your creditor directly, they'll

probably take you to court and request that your wages be garnished long before

you have that $2,000 built up.

And what about your other creditors? Well, they'll be waiting even longer

to get their money from the settlement company. The $6,000 debt will take 15

*more* months to pay off, assuming your creditor waits that long and agrees to

50%. And that $10,000 bill? You do the math.

On the other hand, if you signed up for a 3 year plan with the settlement

company, your debts would be paid off sooner. But, the question is, will your

creditors wait that long? Probably not.

The facts are, you can negotiate with your creditors yourself. Most will

agree to take a smaller monthly payment from you and stop all interest and fees

from accruing. And, of course, you'll save thousands of dollars in fees to a

settlement company.

Before signing up for any service, please be sure you check out the

company thoroughly. And don't let the words "non-profit" fool you either. Alot

of debt settlement companies claim to be non-profit.

Going back to the example above, if you pay them $15,000 over a 5 year

time frame and they settle your debts at half of what you owed, they'll make

$5,000 from you. I'd call that a profit, especially since they might not have

actually helped you in any way.

Most companies will allow you to cancel your account and get a refund of

what you've paid, less the non-refundable admin fee and the monthly service

fees. If you feel you've been mislead about their program, don't hesitate to

argue til the cows come home. File a complaint with the Better Business Bureau

or hire an attorney if you feel you're getting nowhere.

You can visit the Better Business Bureau's website (
href="http://www.bbb.org" target=new>http://www.bbb.org) and find reports on

hundreds of companies. Here's a small listing of companies that have poor

reputations with the BBB:

National Consumer Debt Council LLC - Irvine, CA (A.K.A. NCDC, United

Consumer Law Group)

Financial Rescue Services - Burbank, CA

Debt Legal Services - Anaheim, CA

American Debt Relief - Los Angeles, CA (A.K.A. A M Debt, American Debts

Relief, Debt Relief)

Please be very cautious when choosing a debt help company and ask lots of

questions before agreeing to anything. If you find they're evading your

questions, run fast and run far. There are reputable companies out there, so

keep looking until you find one.

About The Author

Denise Hall is the owner of Home Business on a Budget which specializes in

tools and resources for your home business needs. Visit
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dmh0226@voyager.net