October 31, 2008
The Crowd is Getting Larger
Unless you live in a cave somewhere or just never watch any television or listen to the radio, you may not be aware of how many people are getting into the "debt ______________" business - pick a word: elimination, relief, reduction, consolidation, rescue, etc., etc.
It's like the opening day of fishing - the crowd knows there are going to be lots of fish and what we call "at-risk" borrowers are nothing more than fish to them.
The problem is, a lot of them want you to pay them up front before they actually do anything. Some of them aren't licensed. Others are actually nothing more than web sites used to collect your information to sell as leads to the debt or credit repair market. And as the news stories keep demonstrating, a lot of them are complete frauds and some can get you into illegal activities.
How can you determine whether or not they're legitimate?
The sad answer is you really can't be certain. But our recommendation is to NOT pay someone else to do something you can do for yourself. This isn't a plug but you can pretty quickly determine if you can do this with a simple tool like Charles Phelan's free downloadable guidebook (see links at right).
We've had a link to it for as long as we've been on the 'net, and no, we have no business relationship with him. It's just the most practical thing we've seen in helping people decide if they can do it themselves - and we strongly believe most people can.
So, some simple rules if you really feel you can't handle the task of negotiating down your debt on your own:
1 - Don't pay in advance and understand exactly how much you're paying in fees.
2 - Don't fill out any details about you and your financial situation on a web site form.
3 - Don't deal with any company that does not have a physical address and phone number.
4 - Make sure the company you're dealing with is licensed to provide their services in your state.
5 - Don't do anything verbally. Any and all agreements must be in writing and signed, including by someone at the company.
6 - Remember that "Consumer Credit Counseling" is a non-profit industry funded and controlled by the credit card companies. They may or may not have your best financial interests in mind.
7 - NEVER give a company authorization to take money out of your checking account automatically.
8 - Remember, if you do reduce your debt by more than $600, it will be reported to the IRS and you will owe taxes on the forgiven amount (at whatever your income tax rate is).
You're going to see more and more stories about these companies in the future, mainly because it costs almost nothing to actually get into the business and there are millions of desperate borrowers to try and lure into the program.
There are some chilling examples of just how fraudulent some of them are. Take a look at this story about Ameridebt and Debtworks.
And finally, there really is no such thing as "debt elimination" that doesn't involve paying all or some of the debt back to the creditor. Buying into one of the fraudulent schemes that claim you don't actually owe real money or that you can use secret legal means to do away with debt can even leave you in serious legal trouble. Some of the newer scams claim you can assign your debt to another company without the approval of the creditor. Another one that has been around for years offers something along the lines of a "private international administrative remedy" which is legally meaningless (and can cost you upwards of $2,500 to find out).
Be careful out there!
Craig and Dave