Debt Settlement Companies
You hear the ads on the radio, or even on TV….We can reduce your debt by 50%. You are entitled to reduce your debt by 70%. (I’d like to see the law that entitles you to a reduction in anything… 17 years as an attorney as of the date of this writing and I STILL cannot find that law!) We can help you with a low monthly payment… Sounds great, right? Well be careful, very careful, because in my experience most of the debt settlement companies are scams, or not worth the money that you pay them.
These ads are prevalent through all sorts of media, radio, tv, facebook, twitter, what have you. I feel like I am being bombarded with these messages of debt settlement possibilities. They must be making a darn good profit if they can pay for all of that advertising, don’t you think? Anyways, the typical debt settlement program works like this: You pay a percentage of the overall debt, maybe 15% or 20%, as a fee to the debt settlement company. That’s a pretty high fee if you owe 20,000, 30,000, 50,000, wouldn’t you agree? But if they save you 70%, then its worth it, right? Actually, if they could save you 70% it would be worth it. To continue on, though, let’s figure out how they get paid. Let’s say that you owe $50,000 in debt. Their fee, right off the bat, is going to be $10,000. WOW. I’d like to make $10,000 on a case for sure. Then you are set up with monthly payments of $500. Its a stretch for you, but since you’re going to get out of debt and save alot of money, then you do it. You make 10 payments, so you’re 5,000 into this, and the creditors continue to call. Why isn’t the claim being settled, you ask? Well, Mr. Client, you owe our fee of $10,000 and you have only paid half of it at this point. WHAT??? So you stick with it, hoping that they are still going to save you money. You make a few more $500 payments. Now a lawsuit arrives. You contact the debt settlement company. If they are smart, they will tell you to hire a consumer attorney. Since they aren’t smart, they are likely going to tell you to DO NOTHING. Seriously, they are going to tell you to let the judgment happen, we’ll settle it later. (In some cases I have seen the debt settlement company prepare a response to the lawsuit NEVER allow this to happen.) You trust the debt settlement company, and you do what they say. You keep paying the $500. After 20 payments, they are finally paid off. Now, we can begin to settle debts, right? Well, no, we can’t, because they have also been charging you a $50 monthly fee for administrative purposes, which has added up to several hundred dollars more. Make another payment or two, and now you are all caught up. So now we can settle some debt, right? Well, no again. Now we have to build up your account with some money so that we can make lump sum offers. (if you haven’t fired or sued this company at this point, then you are a fool, but, let’s continue). You continue to pay for another 10 months and have $5000 in your account. The debt settlement company can start to make offers, right? Yes, actually they can. The problem is that you are two years into this by now and your debt has continued to accrue interest at the default rate of 29.99%. That 50,000 debt is now is now near 80,000. WHAT??? So even if they get 50% off, which they won’t, you are still going to owe 40,000. Considering that you paid them over 10,000, you are negative from where you started. By now, if you don’t see how this scam is perpetuated, then leave this site right now because I cannot help you.
I’m not saying that ALL debt settlement companies operate like this, because I obviously don’t know how every company operates. What I can say is that my office fields over 100 phone calls per month regarding debt settlement companies and this is the typical scenario as is explained to us by our clients. Every once in a while, a client does say to me that they company has helped them and that they are merely calling me because they were sued and the debt company advised them to hire a consumer attorney. In any field, lawyers included, there are bad apples. It just seems, in my experience, that there are many, many bad apples among the debt settlement companies.