Debt consolidation services and programs look great at first glance. They promise to reduce the total amount that you need to repay to your creditors, saying that they can get the creditors to take less than the full amount through. Their fees are often unclear, and not really brought into focus. As a result, it can seem like they’re charging nothing. And they make it everything sound as if it will be as easy and smooth as possible. However, the reality is often something different.
These services cause a lot of problems, and I know this because their clients often end up calling me. The consolidation services rarely explain that the only way credit cards and other creditors will negotiate with them is if your debt is already in default status. This can take anywhere from several months up to 6 to 8 months to occur. If you’re payments are current, credit card companies will not negotiate to take less than the full amount from you or anyone else. At that point, they have a valid contract, which they believe they’ll get paid on. The consolidation services allow your debts to go into default status, and they often do this without informing their clients of the dangers.
I have negotiated on the behalf of clients with credit card companies, but I always make it clear that the debt has to be a default status first. The result of the consolidation services failing to explain this is that clients often end up being sued when the service is unable to come to an agreement with them. The credit card companies, once you are in default status can, and will, sue you. Unfortunately, when this happens to someone in a debt consolidation program, the program will tell them to call a bankruptcy attorney. They will do nothing to defend the lawsuit.
The second major issue with that consolidation programs is that they pay themselves first. While you are sending them monthly payments, they take the bulk of the money and pay their own fees. Some of the money may go into escrow for negotiations, but as explained above those negotiations don’t always end up happening. In addition to not explaining the requirement of the debts being in default, the services also are bad at explaining their fees and cost. Feedback from my clients has led me to believe that these companies are not often transparent. Always keep in mind that none of your creditors are required to negotiate with a debt consolidation company, or anyone else, including myself. The consolidation companies cannot compel them to negotiate.
If you have money to pay your creditors and are looking for options, call us at 412-414-9366. Negotiation with your creditors may be possible, but it is better done through a local law firm , who can explain the situation, provide transparency, and provide actual legal advice. Chapter 13 bankruptcy may also be an option as a way to compel your creditors to accept a repayment plan. Unlike negotiating, bankruptcy is filed with federal court orders that require your creditors to take part in the payment program. I would be happy to discuss your situation and see what options you have.