Debt settlement scams are around. The poor economy coupled with the bank bailout in the early part of the recent recession has brought in a new wave of companies and marketing advertising services as part of the “Debt Mediation Initiative.”
Don’t let the “Debt Mediation Initiative” catch you off guard! Let it be noted once and for all – there are NO government agencies offering this type of service, there is no “initiative” to help consumers alleviate their debt problems as part of the bailout. The same holds true as always – if it sounds too good to be true it is!
Of course the clever marketing of these companies never explicitly claims to be offering a government approved relief program. Instead they put an American Eagle emblem on a letter that looks like an IRS notification, add a Washington D.C. address, call the letter “Form 1045D” and poof – it’s offering for-profit debt relief companies leading the average consumer to believe it’s a communication sent from the federal government … an instant debt settlement scam just waiting for the unwary consumer!
So what exactly is “debt mediation” or “debt arbitration”? Debt mediation is not something new. It’s actually just debt settlement, a type of debt relief program where creditors agree to accept a lump sum of money for less than the balance owed to settle, or satisfy, a full balance. While it is arguably the most effective debt reduction option, it is far from the “certain”, let alone “government-mandated” way for you to get out of debt.
In my early college years, I accepted a credit card with a $1000 credit line, which I used up in no time. I promptly ignored its existence, and because I moved so frequently during that period, the company had a difficult time tracking me down to remind me of my responsibilities and asking for payment. I was able to duck the company for about eight years.
I eventually settled into one location and the debt collection agency hired by the credit card company caught up with me. Their attempt to collect the money began with a letter informing me that with interest and penalties, I now owed close to $3000. I ignored that letter, then the next, and eventually I received a call.
I told the debt collector assigned to my case that such an amount was beyond me means. He suggested monthly payments, but I replied that my budget wouldn’t allow it. He then asked if the total amount owed was dropped to $2000, could I borrow the money elsewhere? I answered I’d consider it, but when he called the next day, I told him that too was an impossibility. He asked me to wait while he spoke to a supervisor, and he returned with an offer of $800. I took it.
I was also able to spread that over four months, paying $200 at a time until the debt was considered paid in full. While I am pleased I ended up paying less that I actually borrowed, I don’t think this is a practical way to go about one’s financial life.
I haven’t and wouldn’t take out another credit card and ignore it for years. On the other hand, I assure friends and family who find themselves in a similar situation that the credit card debt collectors want some amount of money, not necessarily the total amount. They won’t announce this right away, but when one has this information already, one can make better decisions on how to pay it back.
Posted by: Wendi
The advantages of debt settlement speaks for itself – a consumer can potentially pay somewhere between 60 to 80 percent of their debt, become debt free in two to four years, and at the same time, have greater flexibility and lower payments each month. And do consider using reputable debt settlement services to help you through the process.
The disadvantages are definitely something to consider seriously, however. For one, your credit is impacted with debt settlement services pretty severely because you must be in default at least 120 days in order for an account to be settled. Once an account is settled, your debt to income ratio will improve, but your account will still be listed as “settled” on your credit. Moreover, and this is in direct contradiction to the “certainty” insinuated in the letters and commercials of “debt initiative” marketing, it’s possible your creditors will not agree to settlements that you can realistically afford. The reason why this is problematic is because you will not know this until after you are already past due.
What does this all mean? real debt settlement is not a scam and is a great option but only if you can no longer afford your monthly payments now or in the immediate future.
If you do choose to enroll with debt settlement services, remember to do a background check on the company you’re considering. Of course, you should probably avoid companies pitching something as part of the “debt mediation initiative” so as to avoid any taint of debt settlement scams.
Top of Debt Settlement Scams – Don’t let the “Debt Mediation Initiative” catch you off guard!.
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