If someone is in debt, it is always best to try and take care of it yourself. Many people can learn to systematically pay down their debt, and negotiate better interest rates with their credit card company. But for people in serious debt hardship, the right professional help can be helpful. The key is to understanding the differences in these debt “relief” options.

Debt consolidation does just that: consolidates your debts so you make one payment per month, which is then split between creditors.

Debt management plans, offered by credit counseling firms, lower interest rates and extend payments. One of the problems is that the IRS, in a recent multi-year investigation, shut down every one of the credit counseling firms it audited for abuse of non-profit status. Credit counseling firms typically receive their funding from creditors, creating a conflict of interest between consumers and their funders.

Debt resolution firms negotiate on consumers’ behalf to lower principal balances due. Consumers then pay the debt resolution firm a portion of the savings (consumer gets services, consumer pays for services). Debt resolution can obtain savings of up to half the full amount owed. And yes, they can hurt credit scores. But this option is for someone in serious debt hardship – someone for whom the only other alternative might be bankruptcy. You can rebuild your credit score, but a bankruptcy judgment stays on your record for a very long time.

With any of these types of companies, people should ask these questions:

1. Compensation: Does the company get any form of consideration or compensation from creditors?

2. BBB: Is the company a member of the Better Business Bureau? A “yes” answer means the company is willing to have its practices scrutinized and to respond to consumer complaints.

3. Individualization: Does the company provide actual consultations and provide advice/education to consumers free of charge? Or is the company simply directing every consumer into a debt management plan?

4. Free education: Does the company provide educational material, including budgeting and financial advice, free of charge? Many firms consider educational material an additional fee source, not a benefit to their clients.

5. Background: What is the background of the company’s management team? Look for good, relevant education and experience — not a team that jumps from opportunity to opportunity to make its fortunes.

6. History: How long has the company been in business?

7. Success: What are the company’s dropout and success rates? Request these statistics.

How do I know? I do consulting work with Bills.com, the online portal to a successful, legitimate debt resolution firm.

The worst part about it was that there was a note on my report about not being able to take out new credit. I had known about that stipulation but had not considered that the rule would apply to more than just credit cards. I had a major dental emergency and I had to borrow from family and friends because I couldn’t get on a payment plan due to the consolidator service. Then I had to move and getting an apartment from any leasing company was impossible because of this same rule. I finally had to get out of the service but the damage had been done to my credit rating.

If you are really down on your luck in serious debt find someone or organization that has the “heart of a teacher”. Not someplace that is in it for the money.

For fee services are upfront about what they charge, and in many cases (research this to be careful) don’t get any money from the creditors so will work for the client.

So, although the for-fee counselor may seem expensive, it may, in the long run, be much better for you.

Americans ought to pay their debts down, at the individual, company, state and federal level or re-open debtor’s prisons.

Oh, I forgot, where to put all these morally and financially bankrupt persons when already 25% of the WORLD’s prison population resided in the good ol’USofA…

The only reason to pay for this kind of service is to educate yourself… And the only way to have the nation back on task is to dismantle the Fed and return to constitutional honest money.

But, wait – O’Bama’s team has already said it would inflate the dollar to oblivion… no need to rush, you can pay later with devalued federal reserve notes IOUnothings.
Hang on for dear life to your debt, do whatever it takes to generate the cash flows to service it, it is maybe the only single most valuable vehicle you can find to transfer value towards you.

Are there major differences between for profit and non profit groups? I for one am going it alone with my own tightly planned snowball, spending budget, and PF Blog ;-)

Another HUGE downside to the debt negotiation companies is that if a creditor decides to sue you (in industry slang, the account “goes legal”), the negotiator will leave you high and dry with no representation and no way back from the situation that they have gotten you into. Stay away and do it yourself!

Most of these companies advertise that they can settle for “pennies on the dollar.” When my coworkers and I hear this, we laugh, because they don’t tell you that it’s usually 100 pennies per dollar. They get you to sign up, which may cost $50-100 to get set up and do your “counseling” where they tell you to not talk to your creditors and to send them the sorry excuse for a Power of Attorney listing the Debt Consolidator as their attorney in fact. Then they collect $50 a month in “management fees” and the debtor pays whatever extra they can to be held “in trust” so that the Debt Consolidator can make settlement offers.

Meanwhile, you’re missing on payments, creditors mark your account as “cease and desist” (because you’ve notified them that you’re working with a debt consolidator, who may be an attorney and federal law requires no further contact to the debtor) and don’t contact you to work out any arrangements. After about 180 days, the creditor issues the debt to an attorney for collection, who then file suit, obtain a judgment, and garnish assets, employment, tax returns, etc. Meanwhile, interest accrued (probably at the credit card contract’s default rate of 28%) up until suit was filed, then attorneys fees, court costs, and statutory interest accrues after judgment is obtained (dating back to when suit was filed). All of this could have probably been avoided with a $50 payment to the creditor and not the Debt Consolidator. And remember, even though judgments only last for 10 years, renewing the judgment for another 10 is almost as simple as paying $20. Imagine paying on a credit card 19 years after you got sued because it keeps collecting interest and the post-judgment recovery never zeroes out the balance?

For a Debt Consolidation company, this is great, because all you need are a couple of people to answer phones, a way to merge documents to create the “start-up kit” with names, SSNs, debt information, and the powers of attorney. Then you count the money. If you have 100 customers (a manageable number for a 2 person operation), that’s $5000 a month in straight income. Then you make a few phone calls a day to the creditors, make some lowball offers, get rejected, and then tell your client “well, the creditors are just being unreasonable, but we’ll keep at it.” So long as you don’t have a soul, it would be an outstanding side hustle. Sure, some accounts would settle or set up payment arrangements (which you can fix by having a “No Payment Arrangement Policy”), but most files will just lay dormant.

This is why a slew of Debt Consolidation companies went out of business in the past few years (Hess-Kennedy being the most recent).

Sorry for being so cynical, but I have no respect for these Debt Consolidation companies. Granted, Creditors probably aren’t any nicer, but at least they are actually owed the money. Debt Consolidators just smell blood in the water and want to get in on the action.

I’m glad I read these tips and I hope others will realize this too.