Question

Hello, LMM Community!  I have a question that may be a sensitive topic for some, so if responding publicly here is uncomfortable but you would still like to share your knowledge and experience, please feel free to message me privately.Hello, LMM Community! I have a question that may be a sensitive topic for some, so if responding publicly here is uncomfortable but you would still like to share your knowledge and experience, please feel free to message me privately. I would greatly appreciate it!  My question is about Debt Settlement Agencies (DSAs) such as National Debt Relief. About a year ago I noticed National Debt Relief listed in the Toolbox section of the website and about the same time I recall the guys mentioning DSAs as a way to handle your debt really quickly if you needed to. What I am trying to understand is why? I really respect the work that Matt and Andrew do on the show, but this one puzzled and concerned me—mostly because I haven’t seen or heard Debt Management and Consumer Credit Counselling agencies given similar mention. I currently work in debt collection; we work with accounts that are still held by banks and have not yet charged off. The messaging in that world is generally that the bank does not work with DSAs and that DSAs are bad for consumers: they don’t make payments, let your account charge-off, and then try to negotiate for less than you paid them, which is how they make a profit. Obviously, this is a somewhat self-serving message for banks, so I am interested in understanding the other side because I know that my current level of knowledge is skewed strongly against DSAs. I emailed LMM last Summer and Fall about this, but I have yet to get a response. I understand that there is psychological appeal to DSAs, but I want to understand what is the financial benefit? To me, DSAs will ruin your credit for a lengthy period of time rather than help you fix it, so is there something I’m missing? I don’t expect anyone to speak for LMM, but if you feel comfortable sharing your knowledge and experience with DSAs, I’d appreciate it. Thanks in advance! Be well, everyone!  

Answer 1

I do not think they ruin your credit anymore than it is already ruined. They basically help pay down all your stuff for a fee, and sometimes can get your total amount owed lowered, even after their fee. The service you are paying for generally is - 1 bill - possible total amount owed is lessened - only have to deal with one creditor I personally view they can help some people, but the cheaper option is to take out your own loan, and pay everyone off. But BEFORE you do that, make sure you no longer spend more than you make.  

Comments

@capri, I can see how some may see it as not making their credit any worse, but, depending on the stage of delinquency and the state of one’s credit at the time, submitting accounts to a DSA is going to make it a lot worse before it gets better. If early enough in the consumer’s delinquency and financial hardship, a personal loan can definitely be a great way to consolidate, manage, and pay-off debt. Unfortunately, deals on those can go pretty quickly as one’s circumstances change.  

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@sigismund yeah i suppose the raw number goes down, but going from 625 to 550, is there really much of a difference at that point? :D

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@capri, between 625 and 550, maybe not. But between 625 and low 400s? Even the number aside, having charged off and settled accounts on your credit report for 7 years?  

Answer 2

I've never trusted those services. I got screwed as an older millennial in the 2008 market crash and once I finally got my career going, opted for one large loan, paid off all my non-medical debts, then paid off that loan. Raised my own credit by over 100 points and never looked back. Those few medical debts are ambulances that have since fallen off. I believe it sacrilege to make people pay for transport to the hospital particularly when it was against my will. Good on ya to anyone who needs those services, but please, do a cost-benefit analysis as to what would work best for you because everyone's situation is different.  

Comments

@bowerman, congratulations on rebuilding your credit! I’m with ya on not trusting them. I hear a lot of people say that they think the DSA is making payments to their banks and they can’t understand why the accounts are past due and they’re getting phone calls and so on and so forth. It’s sad. Even giving the agencies and agents the benefit of the doubt that they are thoroughly and accurately explaining the programs and how they work, I have a hard time reconciling the operation as beneficial.