Know the rules, and beware of scams, before trying to settle bad debts
Daisy didn’t want to interrupt dinner time, but she wanted to help.
“We took a look at your credit history,” she said after apologizing for the intrusion, “and we can really help you get out of your credit card debt.”
I asked if his records showed a lot of money owed to American Express; of course, she assured me.
Then I asked if her debt settlement company could actually work with Amex, which is known not to work with debt settlement companies, noting that I wouldn’t want to sign up with them only to find out later that his business couldn’t. help you.
Daisy fell silent. I insisted that she repeat her company name and answer Amex’s question.
I laughed at that recent cold call, but it also gave me a break.
My mortgage is my only debt. I have no revolving debt (I use a loyalty card that I pay off monthly) and have never had a personal American Express card.
But I wrote the Stupid Investment of the Week for a decade, and years of being a financial columnist have taken me to countless credit repair seminars, online credit rebuilding sites and more, so I get calls and letters like I’m a deadbeat.
The American Express gambit was quick proof that Daisy had never looked at my file, but also an easy test to see if she actually knew anything about the services she is selling. She failed.
I’m not suggesting people play games with cold callers; ignore them or hang up and make sure you are on the National Do Not Call Register (www.donotcall.gov). [I am not, but only because goofy sales calls sometimes are relevant in my work.]
Yet many people with debt problems need help, and they are being hit with calls from people like Daisy; we know that’s true because marketers would stop fishing for business if they never did.
Millions of Americans are behind on debt, which makes debt settlement and debt consolidation big business.
Debt consolidation typically involves using the personal installment loan method to pay off credit card debt and manage it all in one place. A TransUnion study released Oct. 30 showed nearly 20 million consumers held unsecured personal loans in the first half of 2019, a record high.
This study shows that streamlining bills into a single payment helps consumers, generally without creating a debt trap, where people use the credit room created by consolidation as a reason to take on more debt.
Debt settlement, however, occurs when a consumer has typically lost hope of consolidation, has fallen behind on payments, and is in a cycle of late fees and growing debt.
Debt settlement companies use different tools to help struggling consumers get back on track, but the industry also has a plentiful population of scammers and scoundrels.
Unfortunately, not all of these bad actors turn out as quickly as Daisy.
Consumers who must go this route must arm themselves with questions that can assure them that help is on the way.
Here are a few things to learn:
• What are the minimum debt requirements of the business and are your debts eligible for assistance? If your debts are the result of a health problem and are owed to a hospital or doctor’s office, a debt settlement company may not be of much help. They may also want you to have certain levels of debt, which is no excuse for misbehaving. Don’t sign up with a company that can’t handle your unique situations.
• Does the company work with your creditors? Companies like Amex, Discover, Chase, and many more are pretty picky about debt settlement. If a debt settlement company cannot work with your specific creditors, contact creditors directly and inquire about a “hardship program” that could allow you to avoid debt settlement altogether.
• How does the firm’s advice affect your credit rating? If a debt settlement company recommends that you stop making all payments and let the accounts become even more overdue, be nervous and skeptical. They may not be able to deal with your creditors until you are so past in debt that the company assigns your debt to a debt collector who is ready to make a deal; it might result in a long term deal, but it will increase the damage to your credit.
• How are fees determined? Debt settlement companies typically charge between 15% and 25% of total debt. You can usually save a lot by working with a company that charges a percentage of the amount saved by paying; it makes them work to get you the best deals because they increase their wages by forcing creditors to settle for less, rather than being compensated by forcing consumers to settle for anything.
• What are your rights as a consumer? The Federal Trade Commission tightly regulates the settlement industry. There are a lot of things settlement companies can’t promise you – like stop all debt collection lawsuits and communications, promise to make unsecured debt go away, and more – but you need to know up front. what recourse you have in the event of a problem.
“Debt settlement sells like a used car,” says Michael Bovee, co-founder of HelloResolve.com. “When you walk into a parking lot you don’t think about the total price of the car we can afford, we think about what is within our budget and what the monthly payment will be.
“Don’t overlook the risk and ramifications of this transaction, and look at any issues you’re going to face rather than jumping on a settlement that just gives you reduced monthly payments.”
Also, keep in mind that you can talk to creditors, especially if you are doing this when problems and issues first arise and before those issues get worse.
Pick up the phone and cold call your creditors, ask after hardship programs, and try to find solutions. They will treat you better on this call than they will if you let past due debts turn into problems that end in calls from debt collectors or someone like Daisy.