(Claudia from Nevada) We already sign a contract with a Debt Settlement Company they will start this Friday, July31 the first withdraw. After reading all this articles I dont know what to do? Our debt is 80,000 in credit cards and personal loans…Any advice, PLEASE?????
Dear Claudia:
You are correct to realize that you probably will face substantial collection and legal action before you could possibly ever settle on most of your debt accounts. In addition, you have created an additional $12,000 or so in debt that will be owed to the debt settlement company well before they ever do a thing for you. Here is the likely scenario if you stick with that company:
Collection Activities will Increase
Debt collectors will hound you relentlessly as your accounts fall further behind. If you thought that the calls from the original creditors were difficult, wait until you get calls from third party collection agencies. These companies frequently break the law and harass you, your neighbors, family, friends and employers until you either give them what they want or inform them of your rights (Fair Debt Collection Practices Act).
Legal Action will Commence
It may be unlikely for most lenders to pursue a judgment or garnishments on balances below $1,000. However, lenders that you owe several thousand dollars to tend to view legal action as a more viable alternative. In addition, if they catch wind that you are pooling several hundred or thousand dollars with a debt settlement company, they may even speed up their legal action so that they are first in line to be repaid.
Credit will be Ruined
Debt settlement will ruin your credit. Now at this point, with $80,000 in debt, that may be further down on your list of immediate priorities. However, the costs of bad credit can be far reaching (up to 7 years):
- A simple car loan could require a high interest rate of 15-25% APR.
- Your insurance rates could increase.
- You could be denied life insurance coverage.
- You could be passed over for employment.
- Apartment rentals may be difficult.
- Home refinance would be nearly impossible.
Since you just signed with a debt settlement company, I encourage you to look at your contract for ways out. First, most allow for 3 days “cooling off” period in which you may terminate the contract without penalty. Many allow for you to terminate at any time without penalty.
You always have much better options than using a debt settlement company. You might be able to complete credit counseling. Perhaps bankruptcy would be a better option. You could even settle your debt on your own!
It really depends on your unique situation, your financial obligations, your living costs, your job security and your assets. I would recommend that you at the very least contact a reputable credit counseling organization to see if there are better options.
Tags: debt settlement company, debt settlement mistake
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You should do a ton of research before choosing a debt settlement company. You can check out my blog where I break down all the things to look for.
http://debtundercontrol.blogspot.com/2009/07/choosing-debt-settlement-company.html
Debt Settlement is one of many options. You should investigate each one before making a decision. You should be able to get out of your contract as these programs do allow you to cancel. Hopefully you did not send them any money yet.
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[…] Henry Blodget wrote an interesting post today onHere’s a quick excerpt(Claudia from Nevada) We already sign a contract with a Debt Settlement Company they will start this Friday, July31 the first withdraw. After reading all this articles I dont know what to do? Our debt is 80000 in credit cards and … […]
I have to disagree with your position on debt settlement, if the consumer is alerted with full transparency about the process, fees, collection and possible legal action, debt settlement is fine for certain people. Credit Counselors receive “donations” from lenders, so, like the Hope Now Alliance in the mortgage and loan modification world, they are not exactly in the client’s court.
I wish I knew about debt settlement when I was struggling with my debt. My credit bounced back in 4 years.
MaryAnne I tried it when they told me they could settle my debts for less than half what I owed. They lied to me and told me no one would sue me. I wish i knew how settlement worked before I signed. How is this legal? I paid them over a thousand dollars and they did nothing for me. I got 2 summons and filed bankrupcy. Count your blessings that you didn’t file for settlement because you would have had a bad experience.
I read your response and agree that a lot of consumers have been getting into these settlement programs without knowing what they are truly signing up for. I support you in your effort to get the word out about the possible consequences of settlements. I actually wrote an article for the company I work for that you may find useful or interesting. I hope that you find it useful.
http://www.bydesignsolutions.org/little-known-facts-about-debt-settlement