I was just reading about debt relief and debt consolidation companies and how they profit, and I was appalled. These companies are, for the most part, not out there to help individuals get out of debt. Instead, they are trying to make money off the people who have the least amount of money!
How Debt Relief Companies Make Money
If you didn’t know this, here is how they work. This all depends on how much they are trying to get worked out for you, and what method you choose. But, in general:
- You pay a flat fee up front (sometimes up to $1000)
- They ask you to stop making your monthly payments and instead pay the debt relief company who holds this money on your behalf
- As a result of not paying, your credit score drops
- Once you are no longer credit worthy, the debt relief company calls the creditors on your behalf
- The debt relief company then uses the money they have held for you to negotiate a settlement
- The debt relief company then charges you a percentage of the settlement as a fee
This is outrageous! If you are in debt, you can do all of the above steps yourself! You don’t need a middle man to negotiate on your behalf! If for some reason you are lost and do need professional assistance, look for a non-profit organization to help you. A good resource for this is the National Foundation for Credit Counseling.
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This post was written by...
Robert – who has written 317 posts on The College Investor.
Robert is the founder and editor of The College Investor, a personal finance site dedicated to young adult and college student finances. You can learn more about him here and connect with him on Twitter or Facebook.
