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But, of course, a
bankruptcy on your credit report completely
hoses your credit. You can still borrow money,
but you will be paying 25% rates and it will
cost much more in the long run. Also your
bankruptcy may not be approved and you could end
up owing the attorney money for his/her time.
OR it could be a form of debt negotiation. The
company calls up your creditors and tells them
that you are considering bankruptcy. If they
want to help you avoid bankruptcy (and thus
preserve your debt to them) they must either
lower the amount you owe, reduce the interest
rate, or halt the interest charges.
Sometimes this works, sometimes not. But when
a creditor writes off part of your debt, they
usually report it to the credit agencies and it
appears on your credit report and also adversely
affects your credit scores. They may also flag
your file as a possible bad debt and later deny
you additional credit or services.
OR it could be that they are trying to help you
lower your monthly payments, usually through a
debt consolidation loan, home equity loan or a
complete refinancing of your home. If this is
the case and you don't own a home, they will
quickly "refer you to someone who can
help" (yeah, right!) because they are just
looking to make a quick $5000 on loan fees.
These companies are just fronts for mortgage
brokers.
OR other companies want you to make a single
payment to them and offer to pay your bills for
you. They use teasers like reducing your debt
70% to get you in their door. While it may seem
nice to only have to make one payment instead of
10, there is usually a hefty start-up fee and
you pay the company monthly fees of up to $50 or
more for this service. (10 stamps are much
cheaper.)
The problem with this arrangement is that you
have not done anything to change the habits and
actions that got you into trouble to begin with.
And you have no direct feedback as to how the
debts are being paid off. And if the company
should have financial troubles and miss some of
your payments, your credit report could get
hammered (this happened in Utah recently).
These companies realize that you probably will
continue to get further into debt, but by doing
this you will continue to be a good customer for
them. If they make money off of you, they have a
motive to keep making money from you. So do they
really want to see you get completely debt free
or just remain a steady customer?
Watch out for companies that want a large up
front fee (more than $200) or will charge
monthly fees to manage your bills. Watch out for
companies that claim they can clear up your
credit report; some try illegal tactics that
will get you (not them) into trouble. Remember
you are considering employing them to negotiate
with your creditors on your behalf; be sure you
know exactly what they are going to do and say.
If they don't disclose their methods, watch out.
Also remember, just like they say, "Don't
believe everything you read," don't believe
everything you hear, especially in
advertisements. Radio and TV stations generally
do not take much responsibility for what their
advertisers say; that is up to the FCC and FTC.
If you purchase an ad you can pretty much say
what you want so long as it doesn't get the
station in trouble. Check out some 2 a.m.
infomercials; they are a hoot.
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