The front-page article published on 6/8/10 titled “A solution to debt, or more trouble?” was written by Sandra Block. The article addresses a campaign to regulate debt-settlement companies and gives some great information on how debt-settlement companies and credit counseling works (or doesn’t work). The newspaper also featured a short article in the Personal Finance section that compares the pros and cons debt relief strategies:
Debt settlement:
These companies negotiate with creditors to reduce the amount of debt you owe. You are directed to make monthly payments into a savings account. The idea is that they take their fees and payments for your negotiated settlements from the savings account. The problem is they typically take all the money from the first few months for their fees before applying any to the debts. Meanwhile the credit companies continue to charge interest, increase interest rates, and apply late/no payment fees. Your credit is ruined in the process and many people end up negotiating or defaulting on the accounts by themselves.
Credit Counseling:
Non-profit credit-counseling agencies put consumers on a debt-management plan where you agree to make monthly payments to them for three to five years and they pay the debts for you. Fees are nominal and you pay the full amount owed (no settlement/reduced balance). But many consumers drop out of the plan because they can’t afford the monthly payments. Also, these companies receive part of their revenue from credit card companies. Can you say “conflict of interest”?
Bankruptcy:
The final part of the article discussed Chapter 7 and Chapter 13 bankruptcy.
But the article left something out. These are not the only choices most American’s have. Bankruptcy may not have the negative stigma that it used to but is still very damaging to your financial life. And anyone can stop paying their credit card bills to negotiate a debt-settlement at a later date. Finally, what is the true benefit of paying a company who is partially sponsored by credit card companies to pay your bills for you?
I did not pay someone to ride my bike for me. I have never paid someone to go fishing for me. Someone had to teach me – like a teacher or a coach.
So add Financial Coaching to the list: It is much less expensive than Debt-Settlement companies and you will be taught how to settle the debts for yourself. It is more inclusive than a credit-counseling service because a Financial Coach will not only help you develop a personalized spending and debt repayment plan but will be able to look at your entire financial profile to see where other problems or opportunities exist.
You will be taught to fish and coached throughout the process without ever having to give up the pole.
