What Debt Consolidation Companies Say About You Behind Doors |
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Debt
consolidation or debt settlement services can help you get out of your debt traps and also save money for you on your monthly payments but before you engage the services of any of these companies, you must investigate them properly as there are many shams and scams in the field of debt consolidation. You must realize that debt consolidation is not the same as debt settlement/negotiation. The dubious debt consolidation companies at first ask for an "admin fee," which may run into hundreds of dollars and then a monthly service fee, which varies with the company and amount of debt. These companies do not make monthly payments to your creditors, although they take your money regularly. They put that money in a trust account and make a lump-sum payment when there's enough in your account to pay a creditor in full, after they negotiate your debts with your creditors. This might take years and in the meantime, you can be sued and your wages garnished. You would have been better off if you hadn't made payments to the creditors and ended up at the same spot without paying someone to get you there. Your bills continue to grow during negotiations and when you get sued and the judgment is against you, you'll end up owing more than before. The dubious companies don't tell you how their debt consolidation program works before you sign an agreement with them. Here is an example how debt consolidation companies work: You have $20,000 in unsecured credit card debt, comprising debts to three credit card companies of $10,000, $6000 and $4000. You agree to pay $250 per month to the debt consolidation company for 5 years. You think you got a deal since in 5 years you will only be paying $15,000, thus saving $5000 and getting debt free in five years. But there is a catch. The admin fee of $750 will consume your first three monthly payments. Next, the company will keep $50 out of your $250 each month as service fee. This means that nothing gets put into your trust account until your fourth month and only $200 gets added each month. If the company claims to negotiate your debt for 50% of what you owe, and if you take the smallest loan, $4000, it will take 14 months to consolidate that loan and the creditor won't agree to accept half unless it is paid in full. The creditor won't wait for 14 months and will take you to court. Similarly other creditors will have to wait even longer for their money from the debt consolidation company. The $6,000 debt will take 15 more months to pay off, assuming your creditor waits that long and agrees to the 50%. You can guess the fate of the $10,000 debt. If you negotiated a 3-year plan with the debt consolidation company, you might have paid off sooner. But would creditors wait that long? A better way of proceeding with debt elimination is to negotiate with creditors on your own. If approached properly, most creditors will agree to take a smaller monthly payment from you and stop all interest and fees from accruing. You will save thousands of dollars in fees that a debt consolidation company would normally charge. As a lot of debt consolidation companies claim to be non-profit, don't be fooled by those words and check out the company thoroughly before signing up for any service. Referring to the above example, 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. That should be called a profit, especially since they might not have actually helped you in any way. If you feel that the debt consolidation company has misled you, argue with them until they agree and if not, file a complaint with the Better Business Bureau or hire an attorney if you feel you're getting nowhere. |
