it's my understanding debt settlement companies usually work by defaulting on all of your loans and then settling them.
if you're going to do that, just file BK
Current on everything, only able to make minimums which are $1,200 a month.
Single mom with 3 kids under 11, works full time and clears about $5600 a month.
I imagine daycare/babysitting is eating into the $4400? if not, I'd go through the budget again.
The only thing a debt settlement company is going to do is tell her to stop paying her bills, (so they can negotiate with her creditors). Once that happens, the lates, charge offs and collections start hitting her reports and wrecking her credit completely.
There is no special knowledge they posses, nor anything any of these companies can do, that someone can't do for themselves... for free.
While bankruptcy might be worth exploring, I'd also recommend looking into any hardship programs her current lenders may offer including interest rate reductions.
@WildestDreams wrote:
@JoeRockhead wrote:The only thing a debt settlement company is going to do is tell her to stop paying her bills, (so they can negotiate with her creditors). Once that happens, the lates, charge offs and collections start hitting her reports and wrecking her credit completely.
There is no special knowledge they posses, nor anything any of these companies can do, that someone can't do for themselves... for free.
While bankruptcy might be worth exploring, I'd also recommend looking into any hardship programs her current lenders may offer including interest rate reductions.
Thank you. I had suggested she try for hardship or rate reduction plans last year, most of the creditors only had temporary ones if anything, might be worth another try.
I tried to explain that these companies who are offering her a 'deal' at paying only $500 a month are really just holding on to her money and waiting for settlements while her credit tanks further, harassing calls start and the charge offs/lates are probably just as bad a bankruptcy. I'm also assuming that some creditors refuse to settle with these programs. Am I correct that if she stops paying on her own she can just ask the creditors to settle just as these companies would?
Realistically when if ever would a consolidation loan make sense? pending she could get approved, I know her 70-something% utilization is NOT good.
From everything I've seen, it seems bankruptcy has a less obstructive path to recovery. It's true that a Chapter 7 stays on the report for 10 years but, under bankruptcy protections, there are no more calls from creditors, or collection agencies. No worries of being sued, and have seen lots of people here getting credit again in relatively short order.
In contrast, the path of "debt relief" isn't as simple as these companies make it sound. There's always the very real possibilities of collections being reported in addition to the charge offs, not to mention the statute of limitations and being sued by creditors. While some might argue that one's credit can recover in seven years, keep in mind that with a BK the damage to your credit is done all at once. With debt relief, or defaulting on your own, the hits don't come all at once, they come spread out.
First comes the 30 day lates, then 60, then 90, then 120. at that point maybe some creditors deem an account a CO. Maybe some others wait until the account is 180 days late before claiming a CO. Then there will be differing time lines when accounts might be placed with a collection agency and further still, when those collections get reported. All the while, there's still the unknown of whether or not any of them will pursue legal action, and when.
My point is, unlike a BK, all this adverse information comes staggered, over several months, or even years, which can extend the recovery time of someone's credit reports well beyond 7 years. It's a frustrating, uphill battle... the entire time. Yes there is always a possibility that a creditor is unwilling to negotiate, or settle for less, with anyone. Like I said, these companies have no special knowledge, powers, or inside connections to ease the damage that will be done to someone's credit.
I have walked this path myself (defaulted on my own), as have others here. I had any kind of adverse information, and action reported and taken against me you can name, including a repo, judgements, and a tax lien for the cherry on top. I couldn't file for BK because of my high income, but, because of my income, I was able to get myself right again (in more ways than one). With all the lingering effects to my credit scores, it took me more than 10+ years of paying cash for everything, and before my reports were completely clean. Only then was I able to get approved for mainstream cards, etc... My Fico 8 scores at their lowest sunk to, EQ 478, TU 478, EX 446. Today they are EQ 802, TU 799, EX 796.
There have been some good suggestions here regarding loans from a CU, etc... I would encourage your family member to either pursue all these options, or seek a consultation with a BK attorney.