Are those Debt eliminators legal?

[crucifixion]

What is the name of your state? CA

Have lots of credit card debt and I see these commercials and stuff for companies that can eliminate your debt, or most of it. They say they negotiate with your creditors and come to a settlement that is much less than you currently owe.

I don't see how this is possible? I'd imagine you would take some kind of credit hit, but does it really work? If so, how does it work? And how would I know which ones are legit/legal (e.g. instead of just getting a settlement, I find out 6 months later the remaining balance has been sent to a collections agency and now I'm being chased for the remaining balance, etc).

 

[Ladynred]

I see these commercials and stuff for companies that can eliminate your debt, or most of it. They say they negotiate with your creditors and come to a settlement that is much less than you currently owe.

You would be VERY wise to STAY AWAY from these places. Every single one of those ads failt to state ALL the gory details of what REALLY happens when you sign on with them. If your credit isn't already trashed, it most certainly WILL be once you get on board with these scammers - and that's mostly what they are. A well known MD bankruptcy lawyer summed it up better than I can :

http://www.bankruptcylawnetwork.com/2008/06/15/debt-management-programs―better-than-bankruptcy/

Bottom line - not worth it !!!! If you're in serious trouble, you would actually be better off with a bankruptcy than going to one of those places.

 

[stubby71]

I have heard many success stories of people using these types of services. I think it is just watching who you are dealing with and reading the fine print.

Here is an example: You have 2 credit cards that are way up there (lets say a total of close to 12K on both). Because you cannot make the payments on time, your great interest rate of 6.9% or 7.9% has now gone up to 22% or 23%. This is because you made late payments and are not worty of the great interest rate anymore. On top of that, they tack on a $25 to $30 late fee. Now one credit card company is asking for $599 a month and the other is now close to $200 a month. You try to get them to lower the interest rate yourself by a telephone call and you are denied. Now you are screwed. Your choices are either bankruptcy (which use to be a negative on your credit report for 7 years but I have heard it is now ever longer!!) or start a debt management program.

Bankruptcy will give you a clean slate but it is nearly impossible to improve your credit report or score while your bankruptcy is listed on your credit report. Any type of loans, future credit applications or a house will be almost impossible until the bankruptcy is off your credit report. The use of any credit cards or getting any credit during this time is also almost impossible or very hard.

Debt management will lower your interest rate with the creditors and even eliminate all past late fees. The above scenerio I used was from a friend of mine who is now paying a total of $277/month for BOTH credit cards. They will be paid off in 4-4 1/2 years whereas it would have taken him close to 30 years to pay them off with his current interest rate at $799/month. While paying through a debt management program, your credit is getting better showing that you are making the payments and commiting to paying off the debt. Some people can even use other credit cards while on this program but their credit limits are low ($700-$800) unlike bankruptcy where it is hard to get any credit at all.

 

[Ladynred]

I'm going to answer some of that drivel out of order:

Debt management will lower your interest rate with the creditors and even eliminate all past late fees.

MAYBE that will happen, maybe not. Creditors are under NO obligation whatsoever to work with these so-called 'debt management/elimination/negotiation' places. The MYTH that they can always reduce interests a great deal is just that a MYTH.

They will be paid off in 4-4 1/2 years

A Ch 13 runs from 3-5 years, your unsecured debt is often paid off at a FRACTION of what is owed with ZERO interest added, AND you get legal protection from lawsuits and collection activities - NONE of which these debt fixers can offer - and these debt fixers could very well GET you sued in the process !

While paying through a debt management program, your credit is getting better showing that you are making the payments and commiting to paying off the debt.

Sorry, but that's just a LIE told by these debt fixers. Having a debt management company show up on your credit reports is almost as bad as a bankruptcy - it is a HUGE negative and it does NOT improve your credit ! That negative will stay on your reports for 7 years too.

unlike bankruptcy where it is hard to get any credit at all.

Another un-truth. Clearly you know NOTHING about rebuilding credit after bankruptcy.

Your choices are either bankruptcy (which use to be a negative on your credit report for 7 years but I have heard it is now ever longer!!)

You really ARE misinformed. Bankruptcies, per the Fair Credit Reporting Act (FCRA) stay on your reports for TEN years and it has ALWAYS been that way. The CRA's have taken to removing DISCHARGED Ch 13's at the 7 year mark, but the LAW says BK's can stay for 10 years.

Bankruptcy will give you a clean slate but it is nearly impossible to improve your credit report or score while your bankruptcy is listed on your credit report. Any type of loans, future credit applications or a house will be almost impossible until the bankruptcy is off your credit report. The use of any credit cards or getting any credit during this time is also almost impossible or very hard.

Sorry, this is BS, plain and simple. It is easier to recover from a bankruptcy than to recover from plain old bad credit. People can and DO qualify for FHA mortgages at regular rates in as little as 2 years post-discharge, as long as the debtor as taken the time and made the effort to re-establish credit, use it wisely and keep your credit spotless. Bankrupt people are inundated with credit card and auto loan offers - not that they should take them, the rates are usually horrific, but to say it's 'impossible or very hard' to re-establish credit after BK is just hogwash. Rebuilding takes time, EFFORT, and commitment but people can and do get prime rate credit cards 3-4 years after bankruptcy depending on how committed they are.

If you read the article by the bankruptcy attorney that I posted the link to, you have all the information you need to know that you should stay away from these debt fixers!

 

[ReformedMan]

Actually Care One Credit Counselling worked wonders for me. Went credit card crazy in med school expecting a huge paycheck to pay it off, was "asked to leave" after a DUI a year ago, fell on hard times with other jobs immediately after, and have since repaired my credit with their help. Yes, my score has gone up SUBSTANTIALLY. I chose the option where they do not try to settle to only pay off about 1/3 of your debt, I wanted to repay it ALL - since this was the only plan they could promise creditors would receive with open arms. It has worked wonders for me, and now that the job has taken off again I have increased the monthly payments to Care One and will be debt free soon (with a very acceptable credit score). It all depends on your situation, but for me it was a life saver.