In a word, BEWARE. A lot of companies have sprung up lately trying to make money from people who have fallen behind in payments to their creditors. These companies advertise on the television, on the radio, and in print media, promising easy solutions to debt problems. Their promises are designed to pressure someone in debt to buy services that can be very expensive and will often get that person even deeper in trouble.
These agencies are for-profit businesses. The way these agencies work is that you are promising to make payments to the agencies at least once monthly. Most agencies will set up a bank account in the agency's name and your name jointly. In this way, the Company has sufficient control to deduct its fees directly from the bank account. Your monthly payments paid into this account are intended to build up a fund that can later be used to pay your creditors. The debts are settled one by one when there is sufficient money in this bank account to do so. In the meantime, while funds are being accumulated, you will not be making any payments to your creditors on your debts. This procedure differs from a debt management plan established through a Credit Counseling Agency in a couple of significant ways.
- First, the monthly payments that you make to the Credit Counseling Agency is disbursed to your creditors monthly by the Agency; Debt Relief Agencies do not disburse monthly.
- Secondly, because there is a steady stream of income to creditors from the Credit Counseling Agency, most creditors will not engage in collection activity, such as lawsuits, as long as you continue to make regular payments to your Agency which are then disbursed to your creditors. While your creditors are not legally obligated to suspend or delay collection activity, the fact that (a) the Credit Counseling has been contacted at the time the debt management plan is entered into, and (b) the creditor is receiving regular monthly payments as listed in the plan, will usually deter your creditors from collection activity.
When you use a debt relief agency, typically you will decide how much money to deposit to the account each month. The smaller the monthly payment, the more
time it will take to settle your debt. Until these are sufficient funds in the account to settle at least one debt, no payments to any of your creditors will be made. Debts you owe to your creditors are generally settled for less than the balance owed. This may constitute substantial savings to you. In this way, your debts are generally settled one debt at a time, from the smallest to the largest debt.
How are these debt relief companies paid? The debt relief companies take their fees from the monthly deposit made by you, and typical start up fees may be as much as $2800.00 before any part of your monthly payments are available to settle your debts. In addition to the start up fees, most agencies charge a monthly fee to monitor your account. When the debt relief company settles with one of your creditors for less than the full balance due, the debt counseling company takes a percentage of whatever amount you saved as a result of the settlement as an additional fee.
If you are considering using a debt relief company, contact or call the Better Business Bureau in the locality where the company is doing business to see the company's rating. A Google search of the debt relief agency may also turn up reviews from other people who have used the company.
