Can a Debt Settlement Company help me?

10/25/2017
Are you getting mail from Debt Settlement Companies like Freedom Debt Relief? If you are drowning in debt it sounds like a dream, right? Before you make that call let me give you the low down on how the program works and the pros and cons of it.

They promise to help you become debt free in about 4 years and to cut what you are currently paying down quite a bit. Sounds like a win-win, right? Let’s go over how it works. First, you must quit paying on your debts and the payment plan they set up goes into a new bank account that the Debt Settlement Company sets up for you. That bank withdraws funds from your current checking and it goes into the new checking account. Why is that necessary? Well because once the money is over there it is easier for them to access and much more difficult for you. You have no checks, no ATM card and if you do not like how the program is going, basically no access to your money. 

The Debt Settlement Company charges you 20% of your pre-settled debt as their fees. So if you owe $20,000 you will pay $4,000 to them in fees and much of it is paid up front from your deposits. That means for several months your monthly payments (actually deposits) are going to fees, so your creditors are just sitting there waiting. When you call you are told there is not enough funds to settle any of the debt yet and they must just wait until there is. All that while, they are withdrawing your money to pay themselves in fees. So what happens when the credit card company is not getting paid? You get harassing collections calls. Your account gets sent to collections. You may get served with a lawsuit. The Debt Settlement Company does nothing to protect you from any of this. They tell you to write a letter to the collection company to cease and desist all calls and this does stop some stress; however it usually pushes them to sue if you owe a decent amount. It generally takes 12 to 18 months for even one of your accounts to get settled. This definitely destroys your credit score but you can also end up with several judgments on your record. Once a creditor has a judgment they can garnish wages, bank accounts and state tax refunds. 

What to do if you have started a Debt Settlement Company and are not happy with how things are going:

1. Talk to the bank they have opened for you. Look through your paperwork, and you will find information about a bank and the phone number. Do not call your bank- they cannot help you get any of your deposits back. Ask the bank they opened to refund you any funds that are sitting in that account. Do this first before calling the Debt Management Company so they do not clear out the balance if you have any money there. Get an email confirmation if possible.

2. Stop the Debt Settlement Program once you have confirmation that the funds in that new account are being sent to you. They will try to talk you into giving them more time, but just cancel, and ask for verification the program has been canceled.

3. Decide what to do with creditors. You could enter into a non-profit Debt Management Program. This is a 5 year program where all creditors get a monthly payment until you are debt free. They work with creditors to reduce interest and payments. Find a program at NFCC (www.nfcc.org) at 800-388-2227.

4. If the Debt Management Program is unfordable, talk with a Bankruptcy attorney to see if you’re eligible. If you want to avoid bankruptcy at all cost, simply talk with your creditors and let them know what you can afford to pay. If they are willing that is great. If not, you can still send them a money order each month to show best intention, although it may not stop them from taking you to court. Paying something though is better than nothing. 

5. You can settle your own debt without the help of a company. This works really well at tax refund time, or if you have an influx of cash come in. Maybe family steps in and decides to help. You can ask the creditor to take less than what you owe. Start by offering 1/3 of the balance. Most often they will counteroffer, but if you start low the final offer tends to be lower usually around half of the balance. Ask for a settlement offer in writing and try to negotiate mailing in a money order as payment. If they demand to do an electronic withdrawal from a bank, open a new one just for paying these debts, not one you use for paying your monthly bills. You will close this account once the debt is taken care of. Do not let collection agencies know where you bank, as it makes it easy to garnish you. 

If you need help, reach out to the NFCC or find a credit counselor in your area to help you look over your full financial picture. Do not suffer in silence trying to figure it out on your own. This causes anxiety, depression and does not help you overall. You cannot solve the problem if you are not okay emotionally. 

Check out my new book Get your sh*t together with your Money on tips to change your finances around. You will learn to budget, save, pay off debt, and improve your credit! 
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Lots of love,
Beth
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