Debt Settlement Vs. Debt Management
By Kim Sands, Personal Finance Counselor
GreenPath office - Moline, IL
Whether it's credit cards, medical bills, or financial problems after a divorce, debt is a real problem for American households. The average U.S. household carries $16,000 in credit card debt.
Those ads from debt consolidation companies make it sound easy to eliminate your debt and get back in good financial health. But the reality is, without doing your homework, they could actually get you in even more money trouble.
Let's break down the claims about debt settlement.
Claim #1 : Your first call is free. There is no obligation.
While that's true, that is where the high-pressure sales pitch starts.
It's so easy to get confused. They are so high pressure. I have people who say, "I called them with a few questions, and now I can't get them to quit calling me."
Claim #2: We can cut your bills by thousands, avoid high interest foreclosure, and settle your debt for up to 60 percent of what you owe.
With GreenPath's debt management program, you will repay 100% of what you owe. You're making on-time, monthly payments and the interest rate is in the lower single digits.
While we charge a monthly fee for our debt management service, it's much different than the fees charged by a debt settlement company.
Debt settlement companies often will charge - Let's say your payment is $500. They will keep the first three months' payment as their fee. Then they take a percentage of what they pay out. So if they pay $2,000 on a $4,000 credit card, they may keep 20 percent of that too. So a lot of what you're sending them is a fee.
Claim #3: Banks and credit card companies have legal representation, and so should you.
No matter who is on their staff, an attorney for a debt consolidation company can't offer you any legal protection. The only thing that can protect you, legally, is filing bankruptcy. That may be the only choice for you, but the key is knowing your options and your long-term financial goals.
Most importantly, you should never pay a company to do what you can do yourself. You won't get a better debt settlement just because you have hired one of these companies.
In some cases, debt settlement may be only appropriate for people who have access to a large sum of money, like a tax return or and inheritance, to make a one-time payment.
For more information on GreenPath's debt management program, click here.