If I had to pick two industries that are infamous for scams, misinformation and controversy; debt settlement and credit repair would rank right up there. We’re not alone in this category by any means, but we are up there and we’re painfully aware of it.

Debt Settlement is often referred to as Credit Repair’s evil cousin or visa versa. If you ask me, it’s a horrible choice. In fact I would file a bankruptcy before I consolidated. In fact again, there is nothing in this world that would make me consider debt Settlement period, unless of course their was some serious reform.

Let me explain my logic behind this.

On the surface debt settlement makes sense. But like many industries, it’s taken some very bad turns and the industry is in complete shambles (as is credit repair).

In short a debt settlement company will call your creditors and say…

“Hey, my client can’t afford this anymore. Let’s cut the amount owed in half and my client will have it paid off in a year. If you don’t agree my client will just file bankruptcy”

There are a dozen versions of the pitch, but in the end that’s the idea.

Once agreements have been made between the consolidation company and you’re creditors, you will begin stashing money away each month for a year. At which time you pay off the new amounts. So far so good, but here’s where it goes south.

Did you really save money? First of all, the debt settlement company takes a percent of the total amount you owe in debts. Fees are about 10% to 15% if you owed $20,000.00 you can count on paying them about $2,000.00 to $3,000.00

Then they get a monthly fee which is about $500.00 on a $20,000 settlement package. Multiply that over the year long program and its $6000.00 Plus the initial fee of $2000.00 and you’re back up to $18,000.00 - your net savings is now approximately $2,000.00

Now it’s not looking so great and it gets worse. Let’s look at some other ramifications. While you save all year, how do you think the creditors are marking your credit? They mark it late every month and don’t let anybody tell you otherwise. I see hundreds of them every month. It is complete and total annihilation of your credit!

So what is the net/net result? A savings of $2,000.00 and complete destruction of your credit - That makes no sense to me! If I’m going to destroy my credit, I might as well just relieve myself of the debt and file for bankruptcy. Why do the damage AND pay the price?

I’m sure I’ll get a bunch of hate mail from settlement companies. I wrote a similar article a year ago and they were at my door with pitchforks. Each one had a different version, different fees, different angles, but I promise - if you research the contracts, more or less the end result will be the same.

My favorite consolidation sales pitch;
“Your credit score will go up because creditors appreciate your honesty”

So I can shrug off half my debts and my credit score will go up because I was honest?
What if I shrug off the whole amount honestly, will my score double? Give me a break!

In Part 2
- Settle for half the amount
- Lowering the Client Costs
- Let interest pay off the debts

Related Articles:

• If I were a Debt Settlement Company Part 2