Throughout the pandemic, I have often said that things with consumers are much worse than advertised. People are quietly facing or about to face unprecedented financial hardships. The politicians did nothing to give a break to consumers facing large sums of credit card debt. Thus, consumers are making the questionable decision of signing up with debt settlement programs.
A debt settlement program consolidates your debt and negotiates a settlement with your creditors that you pay off monthly (at least that is what they claim). If only it were that easy. Here are some of the things they would rather you not know:
They won’t do anything until you are in default with your creditors. In fact, some will tell the consumer to go ahead and let the debts go into default which is absolutely horrible advice.
Destroy credit scores – Some of these companies actually state that the process will improve credit scores over time. Actually, the opposite happens in most cases.
You still have the opportunity to be sued for your debt – NO matter what these companies tell you, lawsuits over the deficit are still very possible.
They hide behind not-for-profit registrations – There is something that a person instinctively trusts when they see the words non-profit – don’t let that fool you.
When you start making the payments, often the debt settlement company gets paid first.
There is always a guarantee to the consumer. The consumer doesn’t understand that the guarantee is straightforward for the debt settlement company to achieve.
Loans – Some are starting to offer consolidation loans with interest rates as high as 35%. I will let you do the math.
Here is the most disturbing forecast of them all. This forecast also reinforces my views on the state of the consumer.
Debt Settlement Companies that negotiate compromised payment terms project that 10 million customers will use debt settlement services in 2021, a 75% increase over 2020.
Only 25 million consumers have used private debt settlement services since 2014, and 10 million are estimated to use these services in just one year.
Consumers project to use these services at an alarming rate in 2021.
Over the next few weeks, I will offer up tips on how you can handle your debt situation without signing up for these services.
Need a second opinion about money and investment issues? Just ASK BOB! Bob is available and always happy to share his views.
Bob Brooks is a Financial Adviser and host of The Prudent Money Radio Show, aired daily at 3 PM CST on 91.3 FM, 97.5 FM, and 99.9 FM in the Dallas Forth Worth metroplex. Listen online at www,prudentmoney.com. You can reach Bob at 972-386-0384 and online at firstname.lastname@example.org.