| Monday, April 23, 2001 - 09:31 am |
A while back James was looking at debt consolidation vs. bankruptcy while unemployed. I tried to help him with his credit and deciding what to do in exchange for information on debt consolidation to be published here.
He mailed me the brochure from Preferred Financial Solutions, Inc. (The Debt Negotiators) and I was just amazed how much they charge!
There's the 5% Retainer based on the Creditors' CLAIMS, 25% Settlement Fee based on the negotiated savings AND a $40/month Maintenance Fee.
Keep in mind that this program is for people who are considering BANKRUPTCY.
There are countless charts in the brochure showing you how much you'll save compared to paying in full.
Their brochure states numerous times how the credit rating will improve by lowering the debt/income ratio. They don't mention that discharging would lower the debt/income ratio MUCH faster and better and an awful lot cheaper.
From "What about my credit rating:"
"The ultimate determination to approve or deny credit, as well as the accuracy of information reported to credit bureaus, is the sole responsibility of the creditor."
Translation: You pay for x number of months, and when you're finished you're lucky to get the correct "settled" notation. I.e. same as a collection, and your scores are most likely lower than if you had filed for bankruptcy PLUS you lost all the monies paid.
From their sample MBNA settlement letter:
"... When the payment is received, your account will be reported to the national consumer reporting agencies as settled ...."
Apparently MOST people have NO idea what "settled" will do to their credit, there is this MISCONCEPTION that "settled" is good.
For manual mortgage underwriting it was considered identical to a paid collection, and as far as I know credit scoring also rates settlements like collections.
James is now working again and while I was leaning towards discharge, he contacted the creditors to negotiate on his own. He got some discounts on the interest rates but nothing off the principal. His accounts just became delinquent a few months ago, so the creditors weren't very motivated.
He didn't mention the credit reporting at all, I will update if I find out how they report.
Some of the options he explored for his and his g/f's combined debt of $37,000:
CCCS: 850/month for 5 years.
James wrote: "By the way, I talked with a good friend who used to work for CCCS, he told me some pretty horrific stories. They are usually late paying bills, at the expense of the consumer. He told me a few cases where the client paid for 5 years and still owed $12,000 (half of the original amount.) He could not stand for what they were doing to clients."
Cambridge Credit Counseling Corp, another not-for-profit.
James wrote: "On the phone they claimed my creditors would not report a credit counseling service or any 3rd party involvement. When I questioned "how" they could do this, she said the legal documentation was worded so that the creditors agreed not to report.
When I received the paperwork, it clearly stated creditors could report a credit counseling service. They are obviously used to dealing with people who do not read the fine print.
When I confronted her she was pretty rude and said "if I didn't want to save money than that was fine." She claimed Cambridge was signing 5,000 new clients a month and they were going to put CCCS out of business. Cambridge charged a fee of 10% of monthly payment."
I just don't understand why NONE of these credit counseling/negotiating outfits care about their clients' credit rating and they even go as far as to MISLEAD people into thinking their credit will be better than if they filed for bankruptcy.
| Monday, April 23, 2001 - 05:41 pm |
most of these "credit counselors" are scams.
FICO will treat you more kindly in the future if you file bankruptcy rather than negotiating a structured settlement with your creditors. if you have the means to make partial payments over an extended period of time, file chapter 13 instead of chapter 7. depending on your income and assets, the bankruptcy trustee can probably work out a better schedule on better terms than will a fee-based "credit couseling service." you can even go it alone and save yourself their fee.
today, "credit rating" and "borrower profile" are meaningless-- the only thing that matters is your numerical FICO score. [UN]fair isaac's mysterious software dictates unspoken policy to the credit industry, so what might seem to make sense or be the right thing to do may be totally wrong, and versey-vicey. the rules change all the time- even perfect payment history doesn't assure acceptable credit scores-- my research indicates that FICO encourages bankruptcy, and causes more borrower defaults and foreclosures than it ever claimed to prevent. this system is inherently defective, and consumers are the ones given the least amount of reliable information and guidance on how to manage credit, maintaining credit worthiness, or what to do if they get into trouble.
as for counseling, keep your money--- if you want to negotiate, do it yourself, or file chapter 13. even with a bankruptcy record on your profile for 10 years, remember that very few lenders ever see that profile any longer, and FICO software models grade many borrowers as excellent credit risks as little as 2 years after discharge.
that's all for now--
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