You can eliminate debt, but it's hard work and it takes time
If you watch any television at all, you have probably seen ads
for companies that promise that they can get you out of debt
quickly - perhaps in as little as one year. It sounds great -
they've got a staff of professionals with years of experience
who can assist you with your debt problems. They'll tell you how
they can get your creditors to accept much less than you
actually owe - perhaps as little as half of your outstanding
debt. And they will do it all for a small fee.
Wow! Sounds great, doesn't it? Just pay a small monthly fee and
your debts will be cut in half! It does sound great, until you
take the time to ask yourself "Why would my creditors be willing
to accept only half of what I owe them?"
That's a really good question, isn't it?
Here is how these debt elimination companies work. You meet with
them and agree to pay some fees up front. There may be a one
time application fee and there will probably be ongoing monthly
fees, as well. They will then instruct you to send a monthly
amount to them to cover your bills. They may or may not deduct
your monthly fee to them from this amount. You may assume that
they will then negotiate your debt with your creditors and pay
them from the money you send them. Well, it doesn't really work
that way. In all likelihood, they will just sit on the money,
and probably for quite a while. If you have been paying your
bills regularly, even if you have only been paying the minimum
amounts, your creditors are happy. They make tons of money off
of people who pay only the minimum amounts. And as long as you
are doing that, they have no reason to negotiate with you. So
your debt elimination service is going to tell you to send money
to them and to ignore any communication from your creditors.
After your bills have gone unpaid for a few months, they will
then negotiate with your creditors in order to get them to lower
your balances.
There's just one problem with this - if you haven't been paying
your bills, it's going to wreck your credit report. There's no
such thing as a free lunch, and if you don't pay your bills for
any reason, you are going to be reported as a nonpayer to the
credit bureaus. You may be able to have your debt lowered, but
you'll find it nearly impossible to get credit again anytime
soon. And worse, any money owed that is waived by your creditors
will be treated by the Internal Revenue Service as taxable
income, so you'll have to pay taxes on the amount of the bills
that you didn't pay.
And you'll still be paying monthly fees to that company you
hired to "help" you. There are better ways to get out of debt
than by hiring companies that advertise on late night
television.