Recently, a new wave of ads for debt settlement companies has started. I can’t call them a scam, because they’re perfectly legal. But I can tell you that you’ll get ripped off. That’s the quote from the Clark Howard show which reaches millions of people.
First, here is some of the content from their commercials:
-Our attorneys will work with your lenders to settle your debts for up to 70% less.
-Within 10 minutes, an expert will be able to determine if you’re eligible. What do you have to lose but your debt? Call us.
Well, not so fast. Before you make the call, you have to understand the background, and what will happen:
The ad, of course, is targeting people who are in over their head in debts and who would love to believe that their solution is just a phone call away. They’re praying on the desperation of people in real serious financial trouble. At that point, they’re prepared to try anything to get some help out – from anyone.
As the ad says: What have you got to lose? Our experts will determine inside of 10 minutes if you’re eligible. Oh and you will be eligible. Because it’ll make someone believe that three quarters of their debt will get wiped out.
On the call, the first few minutes will be getting your name and contact information so they can keep calling you. Then they’ll get a list of your debt. What they’re looking for is the amount of unsecured debt. That is, debt without collateral such as you house, line of credit against your home, or your car. Unsecured debts are things like smaller credit lines, and 90% of it is your credit card debt.
Based on the total unsecured debt, they’ll then advise you that you’re eligible and that they’ll work with your creditors to get this total amount settled. But one more thing you need to do first: You’ll need to pay them a fee, up front, of somewhere between $1,000 and $3,000 depending on your total debt. That may sound outrageous, but you’d be amazed how many broke and desperate people will find a way to pay that fee for the hope of getting a huge reduction in their debt.
Once the fee is paid, they should start to get to work contacting your creditors. But first, you have to work. They’ll advise you that you now need to stop paying all these bills. It’ll soften up the creditors and then they’ll be able to arrange a settlement when the debt is old and unpaid for three months.
Yes, that’s the extent of their work. Get your money up front and tell you to stop paying. That advice I can give you for free right now. When lenders haven’t been paid for two months or so, they’ll repossess your vehicle, or start foreclosure on your home. Unsecured lenders don’t have collateral. At 90 days, and then again at 180 days behind, they have a big problem. But they’re much more likely to sue you, or pursue some pretty strong collections, as they are to settle with you.
At the end of the day, you’re out some huge up-front fees and your credit is destroyed for seven years. You’ve then got no chance of re-financing, consolidating, or even getting a lot of jobs that run your credit report. You’re right back where you started, but three months behind, the stress gets much more intense with these arrears, and you’ve added more debt to pay their fee. Don’t do it. Don’t make the call. They ask what you’ve got to lose? I’ve just described some of it.