The Promise of Reducing Your Debt
The promise of reducing your debt is often more nightmare—less
fairy tale
Do you remember the old cliché that says, “if it
sounds too good to be true, it probably is”?
I ask you to please keep this in mind when dealing with debt
relief companies that promise to lower your credit card or loan
payments and interest rates.
As you may have noticed, there are a growing number of companies
that advertise and offer to help you reduce your debt by as much
as 70% or even 80% and help you avoid bankruptcy.
But these firms often leave you with ruined credit and worse
off financially.
This is how it typically works:
You pay a debt reduction company a monthly payment. The company
promises to negotiate with your creditors to reduce your outstanding
debt and payments.
What usually happens, however, is that after you have made payments
to the debt relief company for several months, your credit becomes
ruined because the monthly payments to your creditors have not
been made by them.
Next, you might discover that while the debt relief company may
have negotiated reductions with major credit card issuers or other
lending firms for others, it was unable to do so in your case.
Why? Because debt reduction by a creditor outside of bankruptcy
is strictly voluntarily. A creditor will voluntarily reduce your
debt only when it is in its best business interest to do so.
If you are working a steady job, you are “collectable”
because your wages can be garnished. In this case the creditor
usually will not voluntarily reduce your debt by much, if at all.
The case is different if you are long-term unemployed or just
have not paid a bill in several years. Then, the creditor may
reduce the debt as they see that a voluntary payment is the only
method of getting at least some money from you.
For most situations, to get a major debt reduction, you need
to prove that you are in fact “noncollectable” by
showing a long credit history of little income and no payments
to creditors.
If this does not describe your financial situation, then the
creditor has little reason to reduce your financial obligation
to them.
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