Jump to content

What exactly do debt settlement companies do for you?


Recommended Posts

I keep hearing it's not a good idea to use them. They say they're rip offs and they don't pay your debts they make you save your own money. I have an apt. set up tomorrow with a rep and I need to know and make a decision soon. I started to use one 2 yrs ago but I've changed my money. I need some help on this please.

  • Like 1
Link to post
Share on other sites

oh is that how it works? Maybe it was just one of the companies or a comment I saw where they have you put money in separate bank account and that's what's really used to pay the debt. I need to do more research. So the interest is a lot then how are they helping people then.

Link to post
Share on other sites

You will be better off making a budget & doing this yourself. Learn about snowballing. It's a great way to pay stuff off but you have to go on a financial diet & stop spending. First step cut up ALL but one credit card. Seriously cut 'em up so you can't use them. Now the one you kept, wrap it in plastic wrap & stick it in a plastic bag; compress out the air. Put that in another plastic bag & fill with water. Now freeze it so it's a giant p.i.t.a. to get at. Set up a weekly cash budget for yourself & know that is all the money you get. When it's gone, you can't go out or spend. You are going to have to learn to cook; no more lunches out; no more morning coffee -- bring your own. Look for free entertainment -- the library, board games, etc. It sucks for a while but you can make it a game. Do include some money for entertainment & treats. You will fail if you go too austere.

Link to post
Share on other sites

you could take out a low interest personal loan to consolidate debt but the best way seems to be the Dave Ramsey method - pay everything on time and take your smallest debt and pay a bunch extra on it each month until its gone, then target the next debt. Soon you will be down just to your car and house (if you have one)

Link to post
Share on other sites

What do you mean you started using one two years ago? If you've already had a company consolidate and settle your credit balances for you, then there's no changing your mind about it. You owe them now, not your former creditors. Your previous balances will be recorded as "settled" on your credit report. That means you can most likely kiss any chance of getting a new workable loan or credit card any time soon.

 

If you haven't already settled, then you'll have to evaluate for yourself just how badly positioned you are financially. For the vast majority of people, it's better to tighten the belt as much as humanly possible and continue working directly with your creditors to get the balance paid more quickly. But if you're in a spot where you sincerely would be choosing between getting evicted or inevitably defaulting to the point your credit's going to get trashed anyhow, then it sadly may be an option to consider. Even then, it's better to see if you can consolidate your full debts through other means first. A debt settlement company definitely shouldn't be your first, second, or third choice. Your options will heavily depend on the state of your credit, though.

 

Your bank may offer some form of financial advisory services. Check with local and reputable non-profits. And be diligent about that. A lot of predatory debt relief companies will masquerade as advisers pretty much to sell you on the service. But if at all possible, you'll want to sit down with someone with whom you can properly go over your specific financial circumstances to explore how best to balance your livelihood and your credit.

Link to post
Share on other sites
You will be better off making a budget & doing this yourself. Learn about snowballing. It's a great way to pay stuff off but you have to go on a financial diet & stop spending. First step cut up ALL but one credit card. Seriously cut 'em up so you can't use them. Now the one you kept, wrap it in plastic wrap & stick it in a plastic bag; compress out the air. Put that in another plastic bag & fill with water. Now freeze it so it's a giant p.i.t.a. to get at. Set up a weekly cash budget for yourself & know that is all the money you get. When it's gone, you can't go out or spend. You are going to have to learn to cook; no more lunches out; no more morning coffee -- bring your own. Look for free entertainment -- the library, board games, etc. It sucks for a while but you can make it a game. Do include some money for entertainment & treats. You will fail if you go too austere.

 

I disagree with freezing the credit card. I would keep one and only use it in true emergencies while an emergency fund is built. True emergencies are you are stranded with a broken down car and its physically safer to pay the tow company with the card vs advertise the cash you have (not that the driver is not safe - but if you have a dispute or a third party sees you whip out a wad of cash...( - and pay it right away before the bill comes. I agree with everything else 100%. But ask the company to lower your credit limit big time

Link to post
Share on other sites

If your situation is dire and your credit is already severely damaged and you're unable to pay your creditors, speak to an insolvency/bankruptcy trustee to look into your options. They will be able to file on your behalf (consumer proposals or bankruptcy).

 

Since you already have an appointment booked and I'm assuming it's a free consultation of sorts, go for the consultation and ask as many questions as you need to ask. You might be most interested in interest rates and what they're actually collecting from you for their services and what those services are.

  • Like 1
Link to post
Share on other sites

You could try negotiating with each individual card company to see if they can lower your interest. That's all these people do. The interest is what's killing most people more than the principle.

 

Also go to your bank in person to talk to someone. Keep in mind filing bankruptcy is something creditors don't want you to do because then they get nothing (and sucks much worse for you).

They say they're rip offs and they don't pay your debts they make you save your own money.
Link to post
Share on other sites
but the best way seems to be the Dave Ramsey method - pay everything on time and take your smallest debt and pay a bunch extra on it each month until its gone, then target the next debt.

 

That is Snowballing.

 

You have to figure out what is better: paying smallest debt 1st vs. highest interest 1st.

 

The idea is if you have a bunch of bills:

 

CC 1 owe $1,000 monthly $40

CC 2 owe $1,500 monthly $50

med bills owe $5,000 monthly $100

car loan owe $10,000 monthly $200

student loan owe $50,000 monthly $400

mortgage owe $100,000 monthly $1,000

 

Your monthly nut is already $1790 so you pay the minimums on everything, upping the smallest as much as you can. Let's say you even just go to $1800 per month. It will take you about 2 years to pay off the 1st card. But then instead of pocketing that extra $40 per month you are not paying because you paid off the 1st CC, you add that $40 to the payment of the 2nd CC. So now you will pay that card $90 per month until it's paid off. Then you add that $90 to $100 you were paying toward the medical bills. Remember you are already used to having to pay $1800 so you just continue doing that. In theory you get it down to paying $1800 per month instead of $1000 to your mortgage to get that paid off sooner too.

 

All of this is dependent on not racking up new debt. Once you pay everything off, the $1800 in debt service you were paying gets paid to you as your monthly savings. Wouldn't it be nice to know you are putting $20k in the bank every year?

 

If you want to pay everybody off you would need larger chunks of money to get debtors to compromise. They won't reduce the balance & let you pay over time but they might take 2/3 of the debt in a lump sum.

 

You cannot filed for bankruptcy until you go through some type of credit counselor / debt consolidator but get a recommendation from the bankruptcy lawyer to steer away from the crooked ones.

  • Like 1
Link to post
Share on other sites
Debt management programs are different than debt settlement programs. I used a debt management program to pay off my debts. Debt settlement companies wanted to charge me a lot.
Very much correct. "Settlement companies" involve actual settlements, as in paying some amount less than the total balance owed. Debt management programs generally work as a more specialized personal loan to consolidate your debt without the >20% APR. That on its own doesn't impact your credit beyond adding a new installment account. Unfortunately, people who need a debt management program tend to delay to the point their credit gets too shot for one. It's why often, even when it's given with the best of intentions, "just spend less and stick it out" is some of the most destructive advice you can give.

 

Obviously Step 1 is to never get into crippling debt to begin with if you can avoid it. But beyond that, it's very important to do a no-BS assessment on how long you can sustain your life and your debt. If it is a matter of eating out less, cutting back on booze, and putting more down on the principal, then by all means. If you know you're stuck in a hole with only one way to dig, then you need to be exploring your options to consolidate your debt sooner than later. Your debt is your responsibility, but there's no reason on Earth any commercial creditor should command your loyalty. Get a better deal ASAP.

 

Most credit card companies won't even entertain freezing your interest until your account has tanked into the bottom bucket. Generally, that's 6+ months delinquent, meaning your credit's toast no matter what you do. If you've been a loyal and on-time customer for several years you might be lucky if they revert your interest to a non-penalty though non-promotional rate before it comes to that. But 15% - 24% is still pretty egregious. There's a lot from my time collecting on delinquent accounts I'm not proud of. Bottom line is to take it seriously and sit down with professionals the moment you feel like your nose is or even might start sinking beneath the water.

Link to post
Share on other sites

Developing self control is the key and should be implemented not avoided. Call the card companies, try to negotiate for lower interest. Stop using some cards. Never make minimum payments. That is calculated to ensure maximum interest. Card companies are in the business of making money. Once you dig out, use your cards and mentally know you will pay the balance off in full each month. If you can't, don't buy it.

Most people don't have self control.
  • Like 1
Link to post
Share on other sites

Not getting into debt and paying in full prevents high and compounding interest. Paying the minimum is precisely calculated to maximize profits. It is what buries people in debt. The only one benefiting from that advice is this internet guru.🤑

See my above post about snowballing / the Dave Ramsey method.
Link to post
Share on other sites
Paying the minimum is precisely calculated to maximize profits. It is what buries people in debt.

 

Agree. But its okay to make minumum payments on some things while you completely pay off others. It does work. in a perfect world, we would all have the income. but sometimes you don't. I had 7 things in collection after my divorce thanks to my ex and a huge credit card and very very minimal income. i was making payments on everything and never getting ahead. When i stopped doing that and was able to pay off a few of them completely in turn, my credit score went way up vs steadily paying on everything. Because i had fewer things in collections, i was able to qualify for a 0% interest credit card with a decent balance to roll my crappy credit card into -- and i kept going forward. If i had been throwing extra at all 7 debts plus credit card every month, i would still have them all even i they were a lot lower. And nobody cares if 7 debts are only $100 each -- there are still 7 of them

Link to post
Share on other sites
Agree. But its okay to make minumum payments on some things while you completely pay off others. It does work. in a perfect world, we would all have the income. but sometimes you don't. I had 7 things in collection after my divorce thanks to my ex and a huge credit card and very very minimal income. i was making payments on everything and never getting ahead. When i stopped doing that and was able to pay off a few of them completely in turn, my credit score went way up vs steadily paying on everything. Because i had fewer things in collections, i was able to qualify for a 0% interest credit card with a decent balance to roll my crappy credit card into -- and i kept going forward. If i had been throwing extra at all 7 debts plus credit card every month, i would still have them all even i they were a lot lower. And nobody cares if 7 debts are only $100 each -- there are still 7 of them

 

Wow... good job! What the heck. I can't believe your ex left you with that debt.

Link to post
Share on other sites
Wow... good job! What the heck. I can't believe your ex left you with that debt.

 

I would say 70% was because he walked away, but 30% was my own fault. I had really nothing to show for my hard work and ended up relying on a credit card too much for groceries and other incidentals and it got out of control. I was robbing peter to pay paul when I should have done something else. I should have lived with family a little longer and more after the divorce, etc

  • Like 1
Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

×
×
  • Create New...