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How do debt relief agencies benefit?

January 30th, 2012 | 3 Comments

I have a friend who is in debt and needs my help. He gets mail from different debt companies about how he can have all of the debt he has made into one simple monthly payment. I am wondering if this is really legit and how do those certain companies benefit from all of this. Thanks

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3 Responses to "How do debt relief agencies benefit?"

1. waldenconnor says:

   January 30, 2012 at 7:21 pm

   There are many forms of ‘debt relief agencies’ that you are asking about. Here are some data-points:

   1. Debt consolidation loans: they charge points (fees) to give you the loan (typically 1% – 2% of the balance) plus interest and fees on the loan.

   2. Credit counseling firms: they charge a monthly fee (frequently around $35-$40 per month) and some get kick-backs called fair-share payments from your creditors.

   3. Debt Negotiation firms: they usually charge either a percent of what they save you (25% – 35% of savings) or a percent of your debt enrolled (usually around 15% of your debt) over 3 years.

   You should also look at the total cost of getting out of debt, and the time it will take you to get debt free, and lastly the other considerations (credit rating, collections, etc.)

   Good luck and pick your type of debt relief first and then pick a credible company.

   Reply
2. bdancer222 says:

   January 30, 2012 at 8:01 pm

   You have to be very careful. Every day another scam artists pops up.

   If your friend is having trouble keeping up with his debts, he should check into credit counseling. Check here for a NFCC member: http://www.nfcc.org/. These are legit, non-profit companies that offer debt management programs for a nominal fee. They don’t settle your debt. They negotiate lower interest and payments so you can pay off your debt.

   While in the program, it is noted on your credit report. However, upon completion the notation is removed and you will have decent credit.

   Stay away from debt settlement companies. They will take your money and trash your credit.

   Reply
3. Mike A says:

   January 30, 2012 at 8:46 pm

   They charge a fee. The good thing is that it is rolled into the monthly payment which is usually less than you are currrently paying for your credit card minimum payments AND you are debt free in usually 3 years depending on which program you select. Many people have acheived success doing this while others who do not understand it criticize it.

   Reply

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