Yesterday’s blog post touched on “the Good.” Basically what you’re looking for in an ethical, reliable debt relief company. Today we’ve got the flip side of that same coin. Today we have what to expect from the rotten apples in the industry.
The Bad
The red flags are out there, you just need to know what to look for. Now, this doesn’t mean that what these debt settlement companies are doing is illegal. It just means I think they’re going about it all wrong. They’re worried more about their profit than their ability to help clients.
Large upfront fees aren’t the best way to help you get out of debt. If they’re charging 15% – 20% of your total debt then it could take you months, sometimes years just to pay them off. And who knows what can happen over that time. These types of companies want to lump all of your debt into “one easy payment.” You might need to address your credit card debts one at a time. Find a company that’ll be able to do that for you.
Needing a minimum amount of debt just to enter their program is an ineffective way to help people. It’s easy to see why they’d do this though: taking 15% from your $500 is only going to net them $75. They don’t consider that worth their time. That being said, a company with a minimum shouldn’t be worth your time. All they really care about is lining their wallets.
Having the debt relief company explain the legal implications of your actions is vital. While debt collectors are usually willing to settle outstanding debts, they want to be kept up to date with what’s going on. Avoiding them entirely might just lead to lawsuits and wage garnishment
The Ugly
If it sounds too good to be true, then you should probably sense that it is. A recent government investigation into debt settlement companies found one particular debt representative saying “We help 100% of the people who enter this program eliminate their debt, uh, in less than 3 years.” Obviously if you join their program you’re guaranteed to eliminate your debt. And if you believe that I’ve got a bridge in Brooklyn to sell you.
Any company that tells you to stop paying your creditors and instead pool all of your money into an account set up to settle your debts shouldn’t be dealt with. Ever. This advice is just plain bad!
What they’re not telling you is that you’re absolutely ruining your credit profile and your ability to borrow for the next several years. in fact most consumers who come to us for credit repair are doing so to fix the mess made by a debt settlement company. Once you decide to stop paying all of your creditors not even credit repair is going to help your credit scores. Consider those scores trashed.
The Verdict
I’m sure that when you’re ready to do your taxes you go over your finances with your accountant. When you opened a checking account, you probably discussed which banking products were best for you. Your communication with a debt relief company should be the same type of give and take. Demand a consultation to discuss your specific needs. And don’t invest your hard earned money unless you come away feeling comfortable with the steps that both you and your debt relief company are taking to secure a better financial future.
