Debt Settlement Companies, Some Incur More Debt

If you are new to the blog, click HERE to start at the beginning of the story.

POST #4
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.
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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.

CuraDebt Plan

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.

PacificDebt

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.
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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.

T

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!
Jonathan Grossman

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Debt Relief- So Many Options

POST #3
Research. Research. Research.
Once I finally realized that the end was near, I started doing extensive research on my options. Of course the first thing I thought of was bankruptcy. It was all I knew. I thought if you got behind on your bills, your only option was the big B.
With a few clicks on the web, I soon found a zillion companies offering many options. In the next post I’ll share some of my observations on the different companies, but today we’ll focus on the five most likely options you have:

  1. Bankruptcy – Chapter 13 or 7

  2. Debt Consolidation

  3. Consumer Credit Counseling

  4. Debt Settlement

  5. Nothing…which usually gets you back to the top of this list. Not a real option.

For a complete explanation of these options and an analysis of which option is best for you, CLICK HERE.
Here’s what I discovered for my situation:
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Bankruptcy

For me, bankruptcy felt like the death of my soul. A complete failure and announcement to the world that I had screwed up so badly that my only option was to wave the white flag. I had regular conversations with my wife about this option. Was this our destination? How could I face my family and friends? Just 2 years ago I was flying high. Now….death. Thinking back on it, the reason I did so much research was because I was compelled to find another way. I wasn’t going down without a fight. There MUST be another option.

Consumer Credit Counseling

I was familiar with consumer credit counseling. In fact, I had done this about 9 years ago. When my band, Dogwood Moon, got off the road we had accumulated a bit of debt. In order to gain some sense of control and balance in my life, I got a company to manage my debt. I made a lump sum monthly payment to them and they distributed it to my creditors. They tried to get the bank to lower my interest rates, but none of them actually could. Of course they took a fee, and although it was modest, there was really no significant benefit from the company. They just held my hand throughout the whole thing. I could have done it myself, had I been more disciplined. I soon realized this and when I made a bit of money, I paid the whole thing off early. Wasn’t a bad option then, but I wouldn’t do it again. In 2009 consumer credit counseling wasn’t really an option. I couldn’t afford to pay my bills, so it wouldn’t help me if they collected my money and distributed it. The money wasn’t there.

Debt Consolidation

My credit wasn’t good enough to get a decent loan for $130,000. Even if I did, I’d be making payment for the rest of my life. This would take too long and ultimately cost too much. I wanted to take action, rectify my situation and start over. This would be a slow process. I am not a slow kind of guy. I had finally decided to take action and I wanted to get it done….NOW!

Debt Settlement

When I came across the idea of Debt Settlement for the first time, it was a real eye opener for me. I hadn’t even considered the prospect of negotiating with the banks in this way. I never thought of the bank as a collection of real people. It just seemed like a monster I had made a bad deal with and was now sucking up all my money. With Debt Settlement, you call your bank and negotiate a lump sum payoff of the account that is less than full balance. This negotiation can be done in 3 different ways:

  1. You do it on your own

  2. You do it while being coached by a debt settlement specialist.

  3. You hire a company to negotiate on your behalf and pay them a fee. BEWARE: THESE FEES CAN VARY DRASTICALLY! I will discuss this in the next post.

After careful thought, I chose Debt Settlement, option 2. At the heart of Debt Settlement is the ability to negotiate. This was very appealing to me because I love negotiating. My father is a retired lawyer. Growing up was like a series of scenes from that Albert Brooks movie, Defending Your Life. At an early age, I was trained to ask for things in a diplomatic way, stick to my guns and be prepared for the inevitable interrogation. Maybe I should have been a lawyer! You will think I am crazy when I say this, but I have actually enjoyed the Debt Settlement process. I chose a company that was a true consumer advocate. They didn’t charge exorbitant fees and the debt settlement specialist assigned to my case was nothing short of awesome. In my humble opinion, critical to your success with Debt Settlement is the company that assists you. Some of them actually will save you money. Others will take advantage of you and PUT YOU FURTHER IN DEBT.
In the next post, I’ll discuss the companies I chose to avoid and the company I ended up using, Consumer Recovery Network.
Stay tuned, stay afloat. WEALTH AND FREEDOM ARE IN YOUR FUTURE!

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