Explain the Debt Settlement/Reduction scam to me please

[.Shane.]

I don't expect a lot of replies to this thread because, frankly, most people have less of any idea about this than I do.... but for those very few who understand this, I'd love to hear how it works... that said...

We've all heard or seen the ads basically promising to reduce your $20k (or whatever amount) in debt to $5 by calling some "non-profit" who will work with your creditors.

Clearly, all indicators of common sense, detectors of BS, etc.... tell you that there's a scam here (aka TANSTAFL), so, what is the scam? How do these companies really operate? How do they make money? Do the people who call in end up being screwed?


--
(why am I asking? No, I don't need these services, I'm just curious about the nooks and crannies of life...)

 

[Whomp]

Everyone's looking for the quick fix.

These guys claim to negotiate your debts with, say, multiple credit card companies that have already likely written you off and handed you over to a collection agency.

Many times the debt can be negotiated (remember it's likely been written off) but sometimes they can't so you're still on the hook for the whole amount if it can't be negotiated. In the meantime, these guys collect a large monthly fee on top of the money that goes towards paying your creditors. Most of this can be done by the borrower btw.

If it's not a law firm I'd be very skeptical and better yet someone should see a non profit debt counselor at nfcc.org first.

 

[.Shane.]

ah, tx Whomp.

So, they're mostly phishing for people who are already in some kind of collection situation, then they step in and, for a fee, negotiate a settlement that you could've likely negotiated yourself? lol, what would they do if you weren't in a collection situation? "Sorry can't help you until you've screwed yourself"

Reminds me of the agencies that want to charge you for the "service" of providing you a credit report you can get for free if you know how to ask, but, obviously, on a much larger scale.

What is nscc? I know I could google/wiki them, but I"m asking you more from the pragmatic sense of the question.

 

[Whomp]

NFCC is a foundation that offers free credit counseling.

 

[Masquerouge]

Reminds me of the agencies that want to charge you for the "service" of providing you a credit report you can get for free if you know how to ask, but, obviously, on a much larger scale.

My impression is that the whole credit score thing is a scam, but hey.

 

[MagisterCultuum]

I recall that when I went to traffic school a few years ago to get an auto accident removed from my record one of the instructors got really off topic talking about this kind of thing. He said that there isn't anything these companies do that you couldn't do yourself. He recommended that (if you are in a bad enough situation already) you should stop paying them altogether, and respond to their notices saying that you have no intention of paying and do not want to receive any more such notices. I think he said you could sue them if they keep harassing you over it. Anyway, it ruins your credit for a year or two but really annoys the creditors, pretty much forcing them to write it off and making them more much likely to negotiate. Once you come to a negotiated settlement in court you can demand that they remove references to it on your credit report and end up with a better credit score than you would have it you had payed it all back late, in addition to getting out of paying the interest and panelties. I believe he said that this is how most of these companies work. They don't actually pay off your in regular installments like you do, they just collect the money and wait for the collection agencies to offer them a deal. In the mean time, the money would be put in a bank account or other investments that would pay interest to the company instead of to you. I don't think the consultation fees are usually all that high, as the job allow them to get interest free loans from their customers and then loan that money out with interest.


Yeah, the rules that credit score go by are pretty ridiculous, and designed so that the majority of people will have bad credit eventually unless they know the loopholes. For instance, your credit scores are lowered by both getting a credit card and by canceling it (but not by having the bank cancel your card because of bad credit).

 

[GoodGame]

Ignoring credit problems is a horrible solution if you: want to work for government (and even contracting in some cases where security issues are involved), or want to borrow again during the period before settlement.