Why Debt Settlement is the Worst Choice You’ll Ever Make

By admin • June 26th, 2010

Bad choices, we’ve all made them.  If you think you’re immune, take a short memory walk through your dating life, and then join the rest of us.  Most of our bad choices are born out of fear, haste or a misplaced sense of adventure – which is the only logical explanation for why bungee jumping is a sport not practiced solely by those in mental institutions.

Most bad choices are reversible and their impact is minimal, but the choosing to use a debt settlement company is fatal to your financial life in a way that nothing else is.  A recent article in the New York Times entitled, Peddling Relief, Firms Put Debtors in Deeper Hole, by Peter S. Goodman, demonstrates the havoc that debt settlement companies wreak and their victims only crime is operating out of fear or haste.

To begin, they are ridiculously expensive, from 15-20% of the debt amount.  For example, on credit card debt of $50,000, the fee would be $10,000.  Of course that’s an up-front fee with absolutely no guarantee of any debt reduction.  While you pay the debt settlement company, your creditors are paid nothing.  What do unpaid creditors do?  They sue, and of course they win because you do owe the money.  The next step creditors take puts the nail in your coffin  – wage garnishment, bank levy and liens.  In California, creditors with a judgment can take 25% of each and every paycheck you receive.  They can clean out your bank accounts, bouncing every check in their path and incurring NSF fees until the cows come home.  It’s not a pretty picture.

Here are notes from two people who contacted our office on the same day:

“I am in the middle of a home mod for first mortgage. I am also in a debit settlement program for outstanding credit cards and have been for about a year.  My creditors are now taking me to court. I am the sole provider for a family of six. I have tried holding off. I want to know my options.”

“$35,000 in credit card debt.  Lost my job and went back to school. I am now living on financial aid and student loans. I enrolled in a debt settlement program, but am now being sued by one of my creditors.”

How much has each of these people paid to their debt settlement companies – money that should have gone to their children, or to advance their education?   Both are now in a worse position than when they began, standing in the path of an oncoming train trying to hold it off with an umbrella.  Meanwhile, the debt settlement companies are partying down at their convention held at the Four Seasons, Palm Beach.

The moral of the story is:  when the need for financial medical care arrives, don’t go to a charlatan selling promises and placeboes. Get real professional help from someone who can excise the malignant debt, begin the healing process, and allow you to get on with your life.

 

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