[Patricia]

I hear about debt reduction companies. Anyone ever use? Curious how it effects credit.

Did it help with lowering your debt? More importantly, how did it affect your credit score in the short and long term?

Were there any unexpected challenges or issues you encountered during the process?

I’m considering using one but want to gather some real-life experiences first before making a decision.

Thanks in advance for sharing your thoughts!”

[Betty]

Super unpopular advice among many, but worked for me after I had some serious health issues that put me into significant (to me) debt.

I paid it all off at 0% interest by flipping it onto 0% intro rate cards until it was all paid off.

It still meant being super tight and not incurring further debt, and being very aware of the intro period and moving it again if not paid off in full before that expired, but I did it while keeping my good credit intact.

I also did this before it reached the point of late payments or collections.

I recognized that I was sinking and made a plan then. I’m not sure where you are in that regard.

If an issue you face is that credit cards and increased credit limits are too much of a temptation or that such rigid self-management is not practical (and I say that without judgment), then definitely no to that and yes to considering something more structured from an outside party.

[Stephanie]

If you want to refuse debt, pay off the card with the highest interest rate while making minimum payments on others.

You’ll never be out of debt until you pay them off.

Double the payment on the highest card then once it’s paid off, start on the next one.

[Jan]

It’s almost like filing a bankruptcy. It’s hard to find a debt consolidation company that’s not a scam. And no you cannot use cards.

[Patricia]

I think you can call the credit card companies directly and tell them that you cannot pay them then they’ll negotiate with you to pay a certain amount and they’ll claim tge rest of your debt as a loss.

It’s called a charge off

[Sarah]

I’ve not heard good things. They charge you to do it so depending on how ita structured it may make you pay more when you don’t have funds.

Debt consolidation may be an option if you work with a credit union or like splash financial or upstart third party brokers

[Molly]

Generally, debt reduction companies will tell you to stop paying anything to the credit card companies and stop using the cards.

Instead, they will have you send them money, which sounds enticing because they tell you a lower amount than you were paying the credit card companies.

But what they end up doing is calling the credit card companies on your behalf and negotiating a lower payoff amount.

Just as an example, if you owed $20,000, they might say they will gibe them $7,500 cash and pay it off immediately.

The credit card companies accept it because they get more out of that than if they sent it to collections or sued you.

Meanwhile, you’re paying the reduction company $12,000 and they’re pocketing the difference.

You think you’re saving money, but you would have saved more by having those conversations with the credit card companies yourself.

Because you stopped paying the credit cards (the process can take months), you credit score tanks and you’ll have a higher interest rate or be denied for any future loans me credit cards.

[Kristen]

So, I called Money Market Management, it’s changed names since and I’m not sure if the new name, but if you google it comes up.

I consolidated my Discover and Bank of America credit card debt.

My payments before were around $2000 a month.

It was impossible. I consolidated for about $600/month.

Definitely worth looking into! I couldn’t use the accounts while in consolidation.

[Elaine]

Their advice will most likely ruin your credit amd cost more in the long run. Have you tried calling your creditors yourself.

Explain your circumstances and ask for a refuction in interest or an easier payment plan.

You can do it yourself and not pay someone else to do it.

Also many make promises and take your money and do nothing. They have horrible reviews on BBB.

Go to the library and check out Dave Ramsey Financial Peace University.

It has a section on debt repayment and talking to your creditors.

[Meg]

Not good. My payment to them was so high I had to decide between paying it or my mortgage. I chose the mortgage.

[Beth]

I didn’t have a good experience. Cost me more money for them to negotiate a payment plan. Could have done it myself and saved the fee.

[Patricia]

I worked at a debt settlement company many many years ago.
Unless things have changed, the way it works is you stop paying your cards and send them money instead.

They “save” the money in an account they use when they negotiate settlement offers.

BUT and this is a huge but that lead to me being yelled at daily when I worked there. They take their fees first.

So, if their services cost $5k, and you’re giving them $500/month, they’re going to maybe set aside $50/month towards you account and put the rest to your fee.

Meanwhile credit card companies will be adding fees and penalties and may even sue you/garnish your wages.

That being said, I did see success stories in the program.

I also saw a lot of people who had unrealistic expectations. Also everything we did you could do yourself for free.

Side note – the company I worked for, which I’m not even sure is still around, was double dipping and was buying debt as a 3rd party.

So essentially they were buying debt for cheap, and then offering
settlements to the same people we were charging a fee to settle their debt it was honestly one of the worst jobs ever even though I loved my coworkers.

I just went home everyday feeling like I was involved in something unethical. I got out first chance.

[Author]

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