Get Out Of Debt!!!

Dust mentioned the late night commercials for debt companies in his post today. Since this is somewhat related to my area of "expertise", I feel compelled to further caution you and your friends/relatives about the perils involved in getting out of debt.

With so many consumers looking for help, it is inevitable that some less than stellar organizations have risen up to take advantage of the situation. I'll describe each type of company and add some comments from my experience here at the bank. We'll start with the worst and work our way up the food chain.

Jimmy and Guido's International Import/Export:In case you wondered, borrowing from your local mafia loan shark is still a bad idea.

Cash-This-Check-R-Us:These are the guys responsible for all the "checks" that you get in the mail. A company like this differs from Jimmy and Guido's in that they have a P.O.. box and a fed tax id. No matter how many people are calling you to collect money - it's not worth "consolidating" with daily compounded interest at 27% Strangely enough, some actually send checks that can be cashed. You might want to shred offers like these so the losers searching your garbage for ID theft don't cash them for you.

Title Loan Companies:If you sign your car over to these folks, you might as well get a vanity license plate: KSITGBY. Most have nasty loop holes like requiring you to pay back large portions of the loan before they disperse the money to your creditors. This means you have to pay them the money you don't have to begin with so that they will pay the other people you stopped paying so that you could pay them .... and oh by the way - they own your car now.

At this point in the food chain, we are approaching a level of somewhat respectable business. By this, I mean that the corporate address changes less than once per quarter and rarely moves across state lines.

Debt Management Companies (DMC):
This is probably what Dust saw advertised on late night TV. A DMC works with your creditors to settle the debt on your behalf. They offer one low monthly payment and tell you to stop paying the creditors ... and stop taking the collections calls. The problem here is that most creditors don't settle until the account is seriously past due (i.e. 4-6 months); The DMCs know this, so they sit on your money until the bill writes off as bad debt. By this point your credit is seriously ruined and you haven't got much to show for it. Your debt is now larger because all the finance charges and late fees stacked up the whole time you were paying them. Some customers even throw away arrangement offers from the creditors - because they are, "already working with so-and-so".

A company that advertise that they settle for "pennies on the dollar" can do just that with a settlement that requires you to pay 85-90 pennies of every dollar. You probably won't have paid them enough by then - especially if they already pulled out their "administrative costs". By the way, a trained monkey can get you a 15% settlement on a credit card bill once it's been written off as a loss.

Consumer Credit Groups (CCG):
These are the good guys - the most famous, Consumer Credit Counseling Services, is primarily funded by the big credit card companies. Most creditors have dedicated departments that work with CCGs and previously negotiated payment terms for their customers. For example, Citi customers get no fees, not interest and a payment roughly equal to their regular monthly due. Most will have the account paid off in under 5 years.

While working with a CCG, you essentially have no credit; but nobody calls you, your balances go down and you have light at the end of the tunnel - just don't try to pick up a something new at Best Buy on store credit. Oh and by the way, if your creditors start calling you again, you might want to see what they have to say. They might just be trying to let you know that something has messed up your auto-withdrawal - better to get it fixed now.

Then again, you might want to hire the trained monkey.