Here is my standard response to questions about credit counseling and debt settlement:
CCCS goes my lots of different names –credit counseling, debt consolidation, and debt management – but it all pretty much works the same. You send them one big payment and they break it up into small payments to creditors.
CCCS will attempt to work out an "affordable" repayment plan. Generally, the CCCS will ask creditors to reduce the interest rates so that monthly payments go mostly to principal and thus pay down the loans.
Not all creditors work with CCCS type companies. You can't make them do so. So, if one refuses, then you are just out of luck. Hopefully, the CCCS will tell you about it -- but, not always.
Even those who participate will not necessarily reduce the monthly payment required -- just more of the payment goes to principal and thus you pay off the debt faster. Most CCCS companies negotiate programs to pay off the debt in 4 to 5 years.
Yes, CCCS does work for the credit card companies. But, that does not in itself make them evil. There are good ones and bad ones. The best ones are locally based. The best of the best are agencies of the local United Way. Some of the more reputable ones can be found at
www.nfcc.org.
Ironically, CCCS does affect your credit negatively. Every debt enrolled in the CCCS program is reported that way on your credit report for the whole world to see. Many lenders, especially mortgage lenders, view CCCS as a non-judicial Chapter 13 bankruptcy. Mortgage lenders tell me that you need to be out of the program for at least a year before they will even think about a home loan.
Even an honest CCCS can be a good fit or it can be a bad fit for the situation. Every situation is different. You need to understand the pros and cons of the strategy.
I am not as negative as many on this board about settlement companies. It might or might not be a good fit for what you need. Again, it depends on the situation and there are pros and cons of the strategy.
Most settlement companies cannot stop the barrage of collection calls – some are better than others.
A settlement company will attempt to negotiate discounted settlements of your debts. The potential for savings is significant. However, you must be able to fund the settlements as lump sums -- creditors will not accept a discounted payoff on installments.
There are lots of scam settlement companies out there. They are much more interested in separating you from your money than in helping develop a strategy to achieve an end result that leaves you in a better situation.
These companies require their fees to be paid in advance. You will lose those fees if you grow weary of the program and terminate -- or when you find out they could not accomplish what they promised – or when they just vanish and your money is just gone.
There are some ethical settlement professionals. I know because I had a company fail and was so upside down it was not funny. My attorney recommended that I hire a settlement professional. After a lot of research, he and I developed a set of criteria to sort the good from the bad and it worked for me. I was not unhappy. But, I sure have seen a lot of people take a royal you-now-what. Every single time they failed to follow the rules that worked for me.
My advice on choosing a settlement company is:
1. There is no painless solution to your problem -- so don't look for one and beware anyone who tells you there is no pain. Be sure to understand all the choices you have and to evaluate the pros and cons of each alternative. You will know what makes sense for your family. It is OK to listen to all the self-appointed experts on the internet. But, you make the decision based on your own good judgment.
2.
Never ever never pay anything in advance. Most of these guys want thousands of dollars in enrollment fees and it comes up front. Once you pay that money, what is to keep them interested in you? Not much. If you cancel, then they keep all the money you paid and they did nothing to earn it. An ethical company will only charge a fee after they have produced a result that you agree is satisfactory.
3.
Read the agreement carefully. Never accept any clause that pre-approves the acceptance of any settlement without your express consent.
4. Beware of anyone who makes the process sound too easy. If they want to set you up on "easy monthly payments" and it will take 3 or 4 or 5 years -- back away fast. You are going to get the bejezus sued out of you and they will just say "don't worry, it is only a judgment and we will deal with it later". I would worry. You should worry also.
5. Understand that you must be in default in order to settle the debt. Being in default will affect your credit negatively. If you are already having credit problems, then the settlement program is not likely to make your score much worse that it already is. If you are current on your debts, then you must weigh the pros and cons – is the financial savings and potential solution worth the negative impact on your credit for the next couple of years? It does recover in time, but you should expect a decline and then a gradual improvement once the problem is behind you.
6.
Sending money monthly to a settlement company is almost always a bad idea. If you want to save monthly, open an account at the bank. Stay in control of your money. Period.
