Psst! A hot tip on debt elimination companies: They're bogus
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.
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Dear Opening Credits,
Last night I was at the
airport and overheard a conversation. The man behind me at the bar was telling
the girl at the other table that he hired a service to eliminate his debt. He
said he paid $49 to get rid of it all. She was like, really they can do that?
And he said yes, and it's not even on his credit report anymore. He said it's
much better than bankruptcy and totally legal. Can this be right? I was too
embarrassed to turn around and ask him for the company name but I can use it if it
is legitimate. Do you know?
Oh, yes, it's totally true. That guy
knows the secret, and here is the name of the company so you, too, can ...
Yikes, of course not! My first tip of
the day is this: Never take financial advice from random strangers. Avoid them
even more assertively if they're boozing it up and boasting about nonsense to
other random strangers in airports, train stations and bus depots.
While it is possible that this
gentleman did turn to a "credit repair" company to help him with his debts, it
is more probable that the service isn't
on the up and up. Any business that claims to remove accurate and current
information from a credit report is operating illegally.
Here are more key facts about your
responsibility and ability to walk away from liabilities:
- You are obligated to
pay balances back. When you borrow money from a
financial institution, you're under contract with that lender. If you don't
follow through, you're breaking that agreement. They then have the right to sue
you for the money you owe.
You can try to
negotiate a reduced sum. These are called debt settlements and
you may arrange one by yourself or with assistance. They aren't guaranteed,
though. Again, your end of the contract is to repay what you borrowed -- not
less. Also, the break may not be as fabulous as it sounds. A forgiven amount
over $600 is treated as income by the IRS, so your tax bill may be higher than
expected. Your credit report will indicate a settlement, and that isn't great
eliminate unsecured debts. Chapter 7 bankruptcy exists for
qualified individuals who cannot repay their financial obligations. If it's
right for you, then pursue it. If it's not, don't. You can ascertain the difference by reading our 7 point pre-bankruptcy checklist.
They can't take blood
from a stone. In the event you have no assets
or income, and don't expect to either, there isn't much the creditor can do
to lessen its losses. If that's the case for you, even paying the bankruptcy
filing fees might be a waste of your resources. You may need them to keep the
Time may be on your
side. There are only so many years that a
creditor has to take you to court for a delinquent account. Check out the
statute of limitations for your state. If that time frame has lapsed, you have
escaped a lawsuit. It may still be listed on your credit report if the statute
is less than the seven years that allows a negative item to appear, but after
that, you'll be in the clear.
To be clear, I am not
completely opposed to hiring a company to assist you with debt settlement, which is much different than debt elimination.
There are some decent ones and they can relieve you of the DIY burden. The
better firms take on the duty of negotiation with your creditors, and only charge a percentage of the
amount that they save you -- after they've done the hard work. They may also
help you remove inaccurate or old data from your credit reports. Still, this is
something you can do for free and fairly easily by disputing inaccurate information with the credit
But a magic debt deletion company? Nope.
And I must say that it irks me when people put more time and energy in trying
to wheedle their way out of their legitimate debts then they do just doing the
right thing from the get-go. Paying for things you already bought and
used is no fun, but that's what you signed up for when you initially took the
funds from the lender.
So that begets my second tip of the
day: If you don't want to deal with debt or creditors, don't borrow more money
than you can easily (and happily!) repay in the first place.
See related: 1099-C surprise: IRS tax follows canceled debt, How to dispute credit report errors
Erica Sandberg is a nationally renowned personal finance authority. She’s host of several financial web shows, and a frequent guest for media outlets such as Fox, Forbes, Nightly Business Report and NPR. Erica previously was affiliated with Consumer Credit Counseling Service and was KRON-TV’s on-air credit expert. Her book, "Expecting Money: The Essential Financial Plan for New and Growing Families," was published in 2008 by Kaplan Press.
Send your question to Erica.
Published: January 8, 2014