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.

Copyright © 2005-2007 by Retro Marketing. All rights reserved.