Debt allowance companies - What to Watch Out For

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I have recently heard of division out there that will reduce your debt by 70%, just by them somehow talking to them [your creditors]? Do you know anything about this method? Is it legit? I have even heard it on my local radio station and they talk like it is totally legit. - Kevin

Answer:

It unquestionably depends on what they mean by "reduce your debt by 70%" and most likely it is "up to 70%" and not all customers can get a 70% debt reduction.

What could this mean?

Several things. One could be bankruptcy. Some "companies" and "debt counselors" are just fronts for bankruptcy attorneys. A lesson 13 bankruptcy can significantly reduce your debt. All your creditors get notified and have to retort in order to enunciate their claim on you. If they don't respond, they lose out and you don't have to repay the debt.

A judge will then look at your revenue and resolve what you can afford to pay toward your debts each month. S/he then decides how long you will make payments and what part of each cost goes to which remaining creditors.

But, of course, a bankruptcy on your prestige record wholly hoses your credit. You can still borrow money, but you will be paying 25% rates and it will cost much more in the long run. Also your bankruptcy may not be stylish and you could end up owing the attorney money for his/her time.

Or it could be a form of debt negotiation. The business calls up your creditors and tells them that you are inspecting bankruptcy. If they want to help you avoid bankruptcy (and thus preserve your debt to them) they must either lower the whole you owe, reduce the interest rate, or halt the interest charges.

Sometimes this works, sometimes not. But when a creditor writes off part of your debt, they commonly record it to the prestige agencies and it appears on your prestige record and also adversely affects your prestige scores. They may also flag your file as a potential bad debt and later deny you further prestige or services.

Or it could be that they are trying to help you lower your monthly payments, commonly straight through a debt consolidation loan, home equity loan or a complete refinancing of your home. If this is the case and you don't own a home, they will swiftly "refer you to person who can help" (yeah, right!) because they are just finding to make a quick 00 on loan fees. These fellowships are just fronts for mortgage brokers.

Or other fellowships want you to make a particular cost to them and offer to pay your bills for you. They use teasers like reducing your debt 70% to get you in their door. While it may seem nice to only have to make one cost instead of 10, there is commonly a hefty start-up fee and you pay the business monthly fees of up to or more for this service. (10 stamps are much cheaper.)

The qoute with this arrangement is that you have not done anything to convert the habits and actions that got you into problem to begin with. And you have no direct feedback as to how the debts are being paid off. And if the business should have financial troubles and miss some of your payments, your prestige record could get hammered (this happened in Utah recently).

These fellowships perceive that you probably will continue to get further into debt, but by doing this you will continue to be a good buyer for them. If they make money off of you, they have a motive to keep production money from you. So do they unquestionably want to see you get wholly debt free or just remain a steady customer?

Watch out for fellowships that want a large up front fee (more than 0) or will fee monthly fees to administrate your bills. Watch out for fellowships that claim they can clear up your prestige report; some try illegal tactics that will get you (not them) into trouble. Remember you are inspecting employing them to negotiate with your creditors on your behalf; be sure you know exactly what they are going to do and say. If they don't disclose their methods, watch out.

Also remember, just like they say, "Don't believe everything you read," don't believe everything you hear, especially in advertisements. Radio and Tv stations ordinarily do not take much responsibility for what their advertisers say; that is up to the Fcc and Ftc. If you purchase an ad you can pretty much say what you want so long as it doesn't get the station in trouble. Check out some 2 a.m. Infomercials; they are a hoot!

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