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| 'Debt Settlement' companies.* There is a new one of
them every week. They tout "you have the legal right to settle your debt for
less money than you owe!" Hire them, the commercials suggest, and you will
come in the weight of the world on your shoulders and leave riding horses into
the sunset enjoying some new found wealth. Wow! Sounds too good to be true. It
is. What about this statement, "You have the legal right to settle your debt for less than you owe"? They couldn't say it if it were not true, could they? Well, actually, that statement is true. You also have the legal right to buy a car from Casey Chevrolet for less than the sticker price, and furniture at Haynes at a discount -- if they are willing to sell it to you at the price you are willing to pay. Statements such as these sound good when shouted across the airwaves in an announcer quality voice, but they are meaningless. Of course you have a legal right to settle your debt for less than you owe -- but you need the other side to agree. That what settlement means. These supposed debt settlement companies make it sound like they have the magic wand to make it happen. They don't. They are just fee for services organizations that typically offer more than they can provide. Are they any good? Statistically speaking, no. Do some people benefit? Of course, but the percentage is low. Most debt settlement companies do in fact negotiate with your creditors. They also do get many creditors to agree to take less then what is stated on your last bill. And they report back to you frequently astounding results. 50 cents on the dollar! 30 cents on the dollar! Good stuff, so far. They then start you on a repayment plan, which frequently is less than the total you were paying before. They agree to collect their fee from the monthly payments you are making, but may or may not emphasize that the fee charged by the debt settlement company must be paid in full before any payments are made to your creditors. So, you pay the agreed monthly amount. You feel pretty happy right about now since the creditors are no longer calling you. You many even tell your friends about this great service that appears to be working out for you. You are so grateful that you ignore what is really happening: the debt settlement company is keeping your money (since its fee is not yet paid in full), and the creditors are getting nothing! So what do the creditors do when they don't get paid? They sue you, of course. They negotiated a settlement with you (via your agent) and you stiffed them (again). That is precisely what these debt settlement agencies are counting on. Most debtors never finish paying even the up-front fee before the creditors, who are waiting for their money, get tired of waiting and decide to sue. When you complain, they simply refer you to the contract you have with them. You end up filing bankruptcy, just like the debt settlement company either planned, or with reasonable certainly, knew was going to happen, and they keep your money. (Often times they share the booty with the company that referred your case over to them. That's what the fine print disclaimer that you see on the television ads are all about. The advertisers themselves frequently are not the actual debt counseling agencies. They are referral companies. They write and produce attractive ads. They are making ten of thousands of dollars off just the referrals. That should give you a sense of the enormity of the profits involved here.) Here is a wonderful article from SmartMoney.com on Debt Settlement Companies to which we invite your attention. It discusses the techniques used in the 'debt settlement' process, the costs involved and the unlikelihood that a debtor who is in serious trouble gain benefit from the process. The bottom line is that they are rarely worth it Our advise: don't hire a debt settlement company you hear or see advertised on the radio, TV or newspaper unless the service is free or near free, or unless their fee is paid pro-rata with your creditors. That is how the consumer credit counseling services or similar (true) non-profit organizations work. Check out one of the agencies on our referral page. All of these are safe bets. --------------- |