Credit repair after running up $46,789.00 in credit card debt exposes Susan B. of San Diego to potential fraud…something potentially worse than credit card debt and bad credit. When it comes to debt “management” & debt “settlement” programs, Susan’s mistake is typical…and dangerous.
Susan might be in trouble…and she doesn’t even know it…yet!
Below is the full email I received from Susan B. of San Diego, CA. From the facts shared with me, Susan clearly believes she signed up for a program she’s not getting.
Management vs Settlement?
What’s the difference, you ask. LOTS!
If you’re considering a debt “management” program to help you with out-of-control credit card debt, read carefully and understand you might not be able to afford to confuse “management” with “settlement.”
Susan’s email:
“Please help me. I owe roughly 46,789.00 in credit card debt. I recently have signed up with a debt management company that promises to have me debt free in 30 months. I’m scheduled to pay $596.00 for the first 6 months and then $894 for the remaining 24 months. My understanding is that my deposits will go into an account to pay these three credit cards off, and that the program requires me to make an upfront payment (in installments) of $3,734.00 (it’s 100% refundable within the first 6 months of my beginning the program).”
“My understanding was that the debt collectors would stop calling me. They still call me continuously…all the time. They’re getting meaner and threatening. I’ve stopped answering the phone. I’m not using credit cards anymore, but I’m beginning to think I don’t know what I got myself in to.”
“I realize my credit is screwed, but I just want the phone calls to stop and to be debt free. What does this sound like to you? Am I just being paranoid for no reason? Should I tell the debt collectors that I am paying them back and to call XXXXXXXXXX (“debt management company” name withheld).” –Susan B., San Diego, CA
SUSAN’S POTENTIALLY DANGEROUS CONFUSION
Susan, let me try to answer all the questions you’ve asked. I’m sorry to hear you’re dazed and confused about the program you’ve hired to help you.
1. You owe “roughly” $46,789.00 on three different credit cards.
2. You are paying $596.00 for 6 months (that is, $3,576.00)
3. You are paying $894.00 for 24 months (that is, $21,456)
4. In total, you are paying $25,032.00 of an estimated $46,789.00 credit card debt or 53% of debt.
5. In addition, you claim you’ve agreed to an upfront $3,734.00 fee (to be paid in installments).
Are my “numbers” accurate, Susan?
First, my assessment of the “facts” as I know them:
1. Instead of a debt “management” program, you have signed up for a debt “settlement” program. There is a difference, Susan. Instead of making regular payments to the card issuers, your payments are going into an account for a lump-sum settlement payoff to be negotiated and paid at a later date.
2. In the meantime, debt collection attempts have not stopped as you know. And the card issuers are further killing your credit beyond the 30, 60, 90-day LATES…collection…charge-off.
3. You are receiving debt collection phone calls. Typically, the debt “settlement” company’s attorney sends written confirmation that all future communication go through your attorney. That apparently has not happened with you.
4. I am concerned you’re paying an upfront fee ($3,734.00). Susan, these card issuers (probably) will not just charge-off and sell the bad debt to a junk debt buyer. They (probably) will pursue legal action against you at around the 180-day mark, which coincides with the 6-month timeframe allowed for a 100% money-back return of your “service fee,” i.e. $3,734.00. Coincidence?
5. I don’t know your employment situation or the state in which you live. If you are gainfully employed, you might face a judgment, Susan, with possible wage garnishment.
6. You don’t want to have a judgment sitting on your reports either, if you can help it.
ACTION ITEMS:
1. Carefully re-read your service agreement. What does the small print say about canceling prior to 6 months? I’m guessing that the fees are fully or partially (non)refundable.
2. Ask the debt “settlement” company about the Form 1099 you (will) receive should you successfully settle. Are you aware the IRS treats “forgiven” debt as income, taxed at your taxable income rate?
3. Consult your tax preparer about forgiven debt as it applies to your situation. Just understand roughly $21,000 “forgiven” debt x your taxable rate = a big amount of money to owe Uncle Sam + any applicable state income tax.
4. Determine if this debt “settlement” company is the best solution to your problem. could you get a better deal on your own by negotiating with the card issuers? Could you negototiate a payment plan? …where the card issuers agree in writing to report (pays as agreed)? …and agree to settle for less than what is owed?
Credit repair after riding the debt “settlement” roller coaster might leave you even dazed & confused than before you hopped on. I’ll have more for you on Consumer Credit Counseling, Debt settlement & debt management.
Please share your experience with CCCC or debt settlement or debt management. Remind me to share the story of Julie Schooner’s meltdown with a debt validation company.
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