Debt consolidation and debt settlement – avoid the scammers

There are hundreds of telemarketers/e-mail spammers/billboards promoting debt consolidation sites. Sounds great right? Like the debt fairy might come and wipe away all your monthly payments into a consolidation as dense as a black hole. And we all know that black holes are really, really tiny. But the reality is that if your credit has already been damaged by a few late payments or a car re-possession, the interest rate you’re likely to get on these loans will be high. So high that while there may be a certain convenience to gathering all your payments together under one umbrella, in the long run you’ll end up paying quite a bit more than if you negotiated with your individual creditors.

Sounds impossible right? How can little old you negotiate with a behemoth like Visa? Well it turns out, you can. Remember the two lists I told you to write in the last post? For now, put the asset list away, we’ll deal with it later. Look at your debt list. Some of the members of that list are highly negotiable. Your mortgage? Not so much. Your rent? Maybe, but prob’ly not. But… and here’s the fun part… most of the rest of that list may well be amenable to renegotiation.

Most everyone who gives out money would like to see it returned, preferably with interest. If you’re defaulting on your credit cards or your Jet ski loan, the banks are big losers. While they can take the Jetski away, credit card companies don’t have any real tangible assets of yours to go after. And in any event, for both the credit card company and the Jet ski-loaner, taking possession of and selling your stuff costs them a lot of time, money and headache. Again, not in their corporate strategy.

One of your jobs was to write down the names of the companies who held your debt and if you haven’t already, add the little 1-800 number that’s listed on the back of your card.

Beware of the scammers.

Almost all of the debt consolidation ads you see on the internet, on Google, on Facebook, on the sidebar of your favorite news site like CNN.com, foxnews.com, etc. are scammy companies. Here’s what they usually do: They charge an upfront fee of $700 – $1000. They negotiate a settlement on your behalf with the credit card companies for about 50 cents on the dollar. Then they charge you another fee based upon a percentage of what you pay back. You can do this all on your own without them and their outrageous fees!

Now go to this website: http://www.nfcc.org/. This is the website for the National Foundation for Credit Counseling, a non-profit agency that wants to help you have a more stable financial future. The website has dozens of articles and tools to help you organize your finances, behavior patterns to avoid and contact information for free or low-cost financial planning. They are not some skanky used car-salesman site. They have a special section on debt settlement alerts because it is such a popular field with scammers. Here is a link to a file in Microsoft Word format that offers information on debt settlement debt settlement questions.

Starting with your highest interest loan (most likely a credit card), call the 1-800 number, dial “0″ to talk to a person and tell them you want to discuss a payment plan with someone. Think they’ll be angry at your presumption? Oh hell, no. They’ll be overjoyed because it means they can transfer you from the bad debt column to the paying customer rolls.

You’ll have several different options: tell them you want a lower interest rate and threaten to use another card if they resist, tell them you want to set up a scheduled payment plan on your existing balance while freezing or curtailing new purchases in exchange for a lower interest rate or overall balance. Your bank may be able to set up an automatic withdrawal feature so this payment goes out every month before you can even change your mind. But don’t give away the farm – remember, you have what they want: your money. Figure out what the best plan is for you in the long run using the tools at the NFCC site and then don’t be afraid to tell them what you’re willing to offer. It’s worked for thousands and thousands of people before, it will work for you.