Before she knew it she’d maxed out 3 credit cards. She was $15,000 in debt and simply couldn’t pay it. She was getting collection calls and was worried sick about it. So she sought out a debt settlement company. She felt very satisfied with their help. They cut her interest rates down to 2%, set up a monthly payment plan: $350 a month to the creditors, $20 a month to them. She paid the $370 a month without fail for five years. She was out of debt.
Was this a good deal for her or did she get taken?
Let’s examine the numbers. She told me her balance was $15,000 and the interest rate she was paying had been 21%. Had she paid the $370 each month to the credit cards, she would have paid off her creditors in 6 years, so she saved a year of payments. Good deal, right? She’d have had to pay $406 each month to pay them off in 5 years, so she saved a total of $432*. What did she pay in total? 60 months X $370 = $22,200.
Had she paid the creditors instead of the settlement company her credit rating would have stayed intact. Even so, what else could she have done?
Here’s an alternative:
The Consumer Defense Program. Again, let’s look at the numbers. It would have cost her $395 to register, then $150 a month for up to 18 months. She then would have been in an excellent position to settle her debts for 10% to 20%.
Here are the numbers:
$395 + (18 X$ 150) + $3000 = $6095. That’s 27% of what she paid – and the result would have been the same. No more credit card debt.
Monthly Fee for an individual is $150; for a married couple it is $195.
*Source: Federal Reserve System Credit Card Payment Calculator