If you listen to the radio or watch late night TV, you will hear ad after ad for “debt settlement” companies. They are selling services that will consolidate debt and avoid the necessity of bankruptcy. I have previously written a blog post on this blog expressing my concern about the debt settlement industry. In response to that post, I received an email from a debt negotiation company asking for an opportunity to present its side of the story – which I will be happy to do.
In the meantime, here is an email I received from a prospective customer of (a different) debt settlement company. I present this because it will give you an idea as to the cost of this type of service:
Yesterday, July 30, 2009, I contacted XYZ Debt Settlement Company for information about settlement of about $13,000 in unsecured credit card debt owed to American Express and Chase (about $11,800 is owed to Chase). I have not yet fallen behind in payments but have been making minimum payments for the last couple of months. My call was returned by an agent for ABC Company, who checked my credit reports and said that ABC Company’s arbitrators could settle the debt for an enrollment fee of 9%, or $1,165, which would be taken out of my monthly payments over a 15-month period. If I pay over a period of 3-1/2 years, my monthly cost would be $250, which is still more than I can afford at this point, but an improvement over the minimum payments I’ve been making that have amounted to $600-$700. $75 per month out of the $250 would be charged as a maintenance fee, which in 3-1/2 years would total $3,150. The agent says the quote she gave me is time sensitive and I must sign the requisite documents by today. Do you know the reputation of this company and should I go ahead and sign their papers today?
Here are my thoughts:
First, I would be wary about entering into an agreement with any company that insists that you sign up TODAY. What is the rush? Presumably the negotiator can work out the same deal next Tuesday as he can today. A demand that you sign today sounds more like a used car sales tactic than a professional service. I would be reluctant to do business with any company that puts this kind of time pressure on me.
You can and should check this company out. Call your local better business bureau or the governor’s office of consumer affairs. I see no basis for any rush.
Second, I would be concerned that you called one company name, but the phone was answered by a representative for another company. This would make me a little nervous. Given that this industry is basically unregulated a company using multiple names would serve as a red flag for me.
Third, the debt negotiator’s fee seems somewhat excessive to me. This fee is more than what most attorneys charge for a Chapter 13 debt consolidation and about three times as much as the cost of a typical Chapter 7.
What are the terms of this arrangement? How committed would you be – can you back out if you are not happy? What happens if you get sued. Also, how did they gain access to your credit report – did you provide permission?
Bottom line: there are far too many unanswered questions and the cost seems quite high. At a minimum, I would conduct my own investigation and do some comparison shopping.
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