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I
need to know if this will really work. It makes me very nervous in
not paying my bills so they can be negotiated. I talked to DEBTCO
and I got very excited that I could be out of debt in 3 years but
when I got the papers (contract) I felt a little uneasy. Should I be
uneasy? Should I think more about consolidation? Please help me make
the right choice. I really need help with my debt. Thank you.
--Jackie
Answer
Jackie,
Thanks for writing!
I do not know all the details for
DEBTCO however, I'm certainly familiar with negotiating for payoff
terms with credit card banks.
It's been my experience that credit
card banks will negotiate settlements with customers who are having
trouble. And "having trouble" does include not being able
to make their payments.
My impression is that you're a good
money manager and can find a way to pay your bills by using your
credit options. You don't want to be late because you know that
would really hurt your credit history. Worst of all, paying late may
increase the cost of your outstanding balances if banks penalize you
by raising your rates--not to mention all the late fees and other
penalties.
 My guess is that they (DEBTCO) want
you to stop paying so you'll fall into the category of being in
trouble and, therefore, it will be much easier for them to settle
your accounts. Even if they can settle your accounts for less, which
is probably the case, the settlement will be reported in your credit
history and will certainly not look pretty to future lenders.
Okay, so I've written a lot of words
so far but really haven't reached a conclusion. This is because
there's always a trade off. You can do what DEBTCO says and probably
(not definitely) have them settle your accounts for
less thus saving you money.
BUT you risk the consequences of not
paying your bills on time which can be further-reaching than the
penalties on the accounts you want to settle. Lately, many banks have
changed their policies to include clauses that give them the right
to raise your rates if you're late paying other creditors!
Here's an example of that from my
Citibank card: "If you default under any Citibank Card
Agreement because you fail to make a payment to us or any other
creditor when due, you exceed your credit line, or you make a
payment to us that is not honored by your bank, we may increase the
ANNUAL PERCENTAGE RATE (including any promotional rate) on all
balances to a default rate of up to 24.99%."
What to do?
I never want to tell people what they
should do. Ultimately you should base your decision on what you have
learned. Speak with people that you trust to help you make our
decision.
However, I can tell you what I would do if I were in your position.
 I would call each bank that you want
to settle with and ask to speak with their "settlement
department." Tell them that you're going to be having trouble
paying your bill and that you may even be considering bankruptcy
(which you may have to sometime), but you want to find out your
options for paying off the account in full if they reduce how much
you need to pay to "settle" the account. For example, if you
owe $5,000, tell them that you can pay it off in full for $2,500.
They may say that you must pay it off
in full, or they may offer other payment plans or even reduce the
interest rate to zero. They will need to be convinced that you
really need help otherwise they won't consider settling the account
for less than the outstanding balance.
Just make it clear to them that you'll
be talking to a bankruptcy attorney to explore that option. Tell the
bank that if they can offer you something reasonable you'll work
with the bank, or else you'll be forced to consider the
bankruptcy option.
What I'm suggesting is that you try
to settle the accounts yourself first. You may not be able to get
better payoff numbers than DEBTCO but it's possible that you can.
Also, you may be able to avoid the problem of not paying your
accounts on time.
I'd be happy to look at your contract
with DEBTCO and give you my opinion on what they're promising. You
can send it to me by email or fax to (609) 660-1412.
Good luck and please let me know what
happens!
Regards,
Scott
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