Debt UNsettlement Companies |
By Stewart Pelto on April 1, 2010
YOU CAN DO IT ON YOUR OWN... SO LET US HELP YOU
.jpg.aspx?width=75&height=75) Debt settlement companies provide a great opportunity to run your credit report into the ground. In loud, obnoxious advertisements, they promise to reduce your debt by 60 to 80% in a little less than half a year. But their first piece of advice is to stop paying your creditor.
If that doesn’t send a triple-bang-firework alert bursting into the sky that spells out “not smart” in big glowing letters, this definitely will: they’ll ask you to pay them instead. If your common sense isn’t offended yet, read those last four words again.
Here’s their plan: redirect your debt payments into a “special” savings account until you reach a predetermined sum. Then the company negotiates a lump-sum payment with your creditors to eliminate more debt with less cash.
Here’s what actually happens: your first payments line the pockets of your debt settlers (they charge 15-20% of your overall debt for their “services”). Meanwhile, your creditor goes unpaid and pounds you angrily with fees, late charges, and interest. Their collections department calls you often and they eventually hit you with a “wage garnishment,” which forcefully redirects a portion of your salary to them.
There are two conclusions to this scenario. Either the debt settlement company disappears with your money (Hess Kennedy, Allegro Law) or they negotiate a deal that leaves this note on your credit report: “Settled for less than full balance” (what you really want is “Paid in full”). Either way, your credit report is now a train wreck.
Do yourself a favor and cut out the (sketchy) middle man. If you can save money to put into a “special” savings account, send it to your creditors instead (monthly and on time, please). Call your creditors and ask if they have a “hardship” plan for customers in financial distress. You may be able to broker a 6- to 12-month reduction in payments and interest until you can organize your finances. If you need outside help, find a responsible consumer credit counseling company that is listed with the Better Business Bureau. Whatever you do, do NOT give your money to a debt settlement company. They should be called “debt UNsettlement companies.”
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