What would you do?

[wnguyen]

Hi everyone

A friend of mine is in total confusion state of mind right now. She's currently having around mid-20K of debts but her income has drastically reduced to under $18K a year. She has consulted with one debt consolidation and they offered her a plan of 5 years, $490/month. She has asked me if that was a good deal and I'd told her way before that I don't believe in those debt consolidation companies.

Currently, bankruptcy is not necessarily an option for her, as she said that for under $30K, it hurts more than it helps. But paying almost $500 a month for 5 years while her income is shrinking that much is also pretty tough for her.

What would you do and what would you advice her too do? I told her that right now she should explore all options available first and decide what to do later but the more we think about it, the more it confusing it gets.

Thanks all for your input.

[skweakalee]

Why pay a debt-management company a fee for something you can do yourself? In states that have adopted the Uniform Debt-Management Services Act, these companies can charge up to 18% (I'm pretty sure that's the number) of the total debt in fees. What a waste.

Like I said in another thread, try to negotiate with creditors first.

After that, I'm pretty sure you'll need a guardian angel to avoid paying your debts, avoid suit, and avoid bankruptcy.

you = your friend

Why is bankruptcy not an option? Is credit rating the issue?

[wnguyen]

Thanks for taking the time to answer, skweakalee.

I also told her what you said here. Try to talk and negotiate with the creditors first but probably the commercials sounded so convincing to her that the debt management company would do to help. She also said that bankruptcy would be a "waste" for her since she 'only' has around $25K in debt.

[UghUghUgh]

A very good friend of mine hired a company a few years back to help settle her debt and in the end she was totally taken for everything she had invested with them. Your friend could be out a LOT of money and be right back where she was when she first had talks with this company. $500 a month for 5 years after BK is $30,000 towards whatever she wishes by then even a new home possibly. She should REALLY think very hard about this. She may be shocked if she were to 'Google' that company to see their reputation.

I agree with skweakalee.

[ccsjoe]

Thanks for taking the time to answer, skweakalee.

I also told her what you said here. Try to talk and negotiate with the creditors first but probably the commercials sounded so convincing to her that the debt management company would do to help. She also said that bankruptcy would be a "waste" for her since she 'only' has around $25K in debt.

I don't know what her basis is for determining whether or not bk is an option, however, I disagree with her willingness to write it off the table in favor of debt management scampany....oooops, company.

[skweakalee]

Here are a few things your friend should know about some of these debt management companies (DMC from now on):

- they inform their clients to stop payment in order to get the CC companies to negotiate (this advice is illegal under the UDMSA, but they give it anyway).

- if a creditor doesn't want to deal with the DMC, they don't have to.

- a creditor can still sue the debtor regardless of whether or not they've signed on with a DMC. i've seen it happen, and it happens all the time.

- the fees they charge are high and front loaded. I've seen them collect $3,500 in fees during the first 4 months.

- these companies don't actually do anything! they take your payments, put them into an account AFTER taking their high fees, and hold the account until it hits 40-50% of the amount you owe. at which point they attempt to negotiate with the creditor(s). she can save thousands by doing this herself (.18*25000=4500), or at least put that amount toward the debt.

she definitely has to read the contract and take note of the fees. after she does, i don't think she'll want to do it.

[keepmine]

Paying $25K in cc debt on $18K income plus, all the other normal bills is mission impossible. Unless she has property beyond her states exemption level she should file bk.
Once she defaults, she'll be over that $30K mark in a hurry due to fees and default interest rates.

She doesn't need a debt management company. Once she goes 120+ days in default, she'll get all sorts of offers from creditors. Thing is, they'll want there money in a lump sum within a few months.
My personal experience-at about the 150 day mark of deliquency, Cap1 offered a 50% settlement and Chase offered 45%. Both unsolicited. Since bk was my endgame, I liked by zero payback plan a lot better. This was in 05 BTW.

[wnguyen]

Thanks all of you for your input. Boy, am I glad that I chose BK instead of DMC. It was frightening at best. Last year I was also thinking of debt management (DM) but I consulted with a non-profit company. The guy I talked to was quite helpful and he even said that I had to REALLY think twice hard to even consider DM because I would get screwed up more. I didn't understand what he meant by that and now I know. Now I think it's time to convince her to head to bk.

[drowning123]

$500 a month for 5 years after BK is $30,000 towards whatever she wishes by then even a new home possibly.

I agree with skweakalee.

I agree with you Ugh. People are under the misconception that you are forever doomed after bankruptcy. You will never ever be able to get credit again. I got an offer 2 days ago and I filed on 8/19! Needless to say, tossed it in the garbage. Bankruptcy doesn't mean life is over.

[drowning123]

Also, I was with a debt management company maybe ten years ago. I stopped working with them within a month. They're scammers. Payments didn't make it on time. All that stuff.