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Research! Research! Research!
You will hear me say this dozens of times. As a consumer, it is our responsibility to be educated and informed. The lack of education, laziness, or in my case, DENIAL, gets us in trouble.
I vowed to never again be an uninformed consumer. With that in mind, I put all of my efforts in to finding the best debt settlement options. I spent 4 weeks and about 40 hours on the phone talking with different companies.
There is a barrage of information out there. Just by typing debt settlement into Google, you will get 8,650,000 results. Click HERE.
Insane. It is daunting to cull through these resources and decipher what the hell they are offering. I took my time to understand my options. My first calls were to the obvious big companies like: Credit Solutions, Ameridebt and CuraDebt. But I also looked into some of the lesser known companies like Pacific Debt. Here was the standard offer:
- I was to deposit $2000/month into an escrow account.
- The first 6 months of these payments into that escrow account would go towards paying the debt settlement company for their services.
- I would continue to make $2000 payments for approximately 36 months.
- As settlement offers came in, they would consult me.
- The banks would be paid from this settlement account.
- In 36 months, I would be out of debt.
At first, I was very excited and relieved about a solution to my problem.
Below are the estimated savings and expenses from 2 of the companies I spoke with. As you can see there is an incredible amount of variance. A lot of that deals with the fees and the length of time you take to settle.
If they got a 50% savings on my $130,000 of debt, it would take 41 months of $2000/month payments to get out of debt. Total cost including settlements and fees:$81,900.
If they got a 60% savings on my $130,000 of debt, it would take 36 months of $2000/month payments to get out of debt. Total cost including settlements and fees: $71,500.
If they a 75% savings on my $130,000 of debt, it would take 28 months of $2000/month payments to get out of debt. Total cost including settlements and fees: $55,900.
With $130,000 of debt, it would take 46 months of $2000/month payments to get out of debt. Total cost including settlements and fees: $90,995.
Pretty interesting stuff, right!?!
After a few days, I saw something that didn’t make sense:
- Before I would decrease any of my debt, the debt settlement company would increase my debt on average of $12,000 because they get paid first!
- All of the companies say the bank offers their best deals during the first six months – but according to their suggested schedule, I would have no money left in my escrow account at 6 months because all of that $12,000 would go towards paying the debt settlement company their fees. Which by they way, is for a service they haven’t even performed. Let me repeat this because it is critical.
THE BEST OFFERS COME AT THE 6 MONTH MARK. EVEN THOUGH I WOULD HAVE ACCUMULATED $12,000 IN MY ESCROW ACCOUNT, I WOULDN”™T HAVE ANY MONEY LEFT IN THERE TO PAY THE SETTLEMENT OFFER BECAUSE THAT MONEY ALREADY WENT TO PAY THE DEBT SETTLEMENT COMPANY!!!!
Talk about the contradictions!? In many cases, clients get discouraged at that point. They drop out of the program and declare bankruptcy. These debt settlement companies thrive on our falling out of the program. They are predatory companies much in the same way the credit cards are predatory lenders. Remember what I said about educating myself? I would not be a victim a second time around.
So let’s review…. this is why most debt settlement companies are scoundrels:
- I pay the debt settlement company $12,000.
- In 6 months, the bank makes an offer.
- Since I have no money in my escrow account, I ask the bank to spread the payments out over the next 6 months so I can have time to accumulate some funds.
- The bank declines because most of their settlement offers have a 90 day payment time-frame.
- Threatened by liens and judgments, I drop out of the program and declare bankruptcy.
- The bank writes off my debt.
- The debt settlement makes pure profit.
I proposed this contradiction to the reps, but their response was foggy at best. Since I was using the information they gave me to explain this contradiction, they didn’t have an answer that made sense. Instead, they deflected my question by saying they can get a better deal than I can get myself. WHICH IS TOTALLY UNTRUE BY THE WAY!
It became clear that the rep was just a sales person and had no REAL idea about this process. Once enrolled, I would never talk to him again.
As I said before, lets take ownership and take control. I fell into the debt trap, but I was not going to fall into the debt settlement companies’ trap.
Please don’t be so desperate and incur more debt when you are trying to get out of debt. If you take the time to run the numbers, you will see most programs don’t make sense. An effective debt settlement company will charge a nominal start up fee, base their commission on performance AND take their commission AFTER you have paid the bank. Sound too good to be true? Stay tuned!
In the next post, I will discuss how some debt settlement companies are true consumer advocates.
Stay tuned, stay afloat. WEALTH AND FREEDOM ARE IN YOUR FUTURE!