A (2:47)
Who are you talking to? And let me encourage you guys, go watch the full 16 minute video if you want his full 60 minutes investigation. So let's break down how these companies operate by answering answering three questions today. First, what exactly is a debt relief company? Well, these companies offer to settle your debt for less than you owe. And here's the pitch. You pay them a bunch of money, they attempt to negotiate with your creditors, and maybe they wind up settling your debt for less than you owe. And they always start with some vague statement about how banks hate this before promising quick, easy relief for anyone who's carrying credit card debt behind on payments, dealing with collections, or feeling stuck with no clear plan. AKA people who are vulnerable, feeling desperate and will click on any ad promising a way out of this mess. And I gotta say, they make it seem like a compelling product. I mean, not even the ShamWow guy did this good of a job. And if you're wondering how old Vince Offer is doing, the first Google Auto result is Vince Offer arrested. So yeah, not thriving. But the real issue with debt relief is how this happens and what it costs you along the way. Which brings us to our second question. How do these companies work? Let's walk through the four steps. Step one, they tell you to stop paying your creditors. This is the crux of their entire strategy. They straight up tell you to stop making payments on your debts. Not even minimum payments, just stop paying altogether. The idea is that creditors will be more willing to settle once your accounts are severely delinquent, a la that goth kid who was always late for social studies. Step two, you send money to an escrow account. Instead of paying your lenders, you send money to an account set up by the debt relief company. The theory being that the debt relief company use that money to negotiate settlements down the road. Step three, your accounts, of course, go delinquent while you're waiting. Late fees add up, interest continues to accrue, your credit score drops significantly, and your Accounts likely get sent to collections. But this is not an unintended consequence. It's the whole strategy. Once your accounts go delinquent, these companies start using that as leverage to bargain with the people you owe. Which brings us to step four. They attempt to negotiate. After months, sometimes even years, the company will try to negotiate settlements for your debt. And the goal here is for your lenders to completely lose hope in your ability to pay back the full sum of what you owe, to the point that they accept a much smaller payment and call it square. Now, you might be thinking, well, that's genius. Makes sense. Sounds good. Sign me up. Hold your horses. Buck up. The reality is that creditors are not required to settle. They can reject the debt relief company's offer, completely ignore it, or sue you instead. Which means all of this trouble could end with you in a courtroom. And it's gonna be nothing like your favorite courtroom reality shows. Way less fun and probably far less methamphetamines. Not that methamphetamines are fun. Kids do not. Do not do metham. Do. Gosh, do they even do dare anymore in these schools? This in chemistry, okay, this is arts. But that's only scratching the surface because this approach to debt payoff creates several other serious risks that are often minimized or completely glossed over in the sales pitch. Starting with, number one, your credit is intentionally destroyed. But George, I thought you didn't care about credit scores. Correction. I don't care if you have a good credit score. I'd rather you not have one at all because you're debt free and you're never touching the stuff again. But if you have a bad credit score, that's going to be a problem. Especially if you get there by destroying it on purpose. You're going to have a difficult time renting an apartment. You're going to have higher insurance premiums, trouble setting up utilities, potential issues with employment screenings, and more risk number two, your debt balance could grow. Because interest and fees continue stacking up while you're not paying, your balances can and often will increase, which means a larger settlement, a more difficult negotiation, and fewer savings. Risk number three, lawsuits are a real possibility. Now, I mentioned this earlier and it's one of the most under discussed risks of using a debt relief company. Because if a creditor decides they've waited long enough in the midst of your cat and mouse game, they can sue you. And spoiler, you are the mouse. Oh, and debt relief companies are not legal representation, which means if you do get sued, you'll either be on your own or forced to pay an attorney. Risk number four, forgiven debt can be taxable. If a creditor forgives part of your debt, the IRS may treat that forgiven amount as taxable income. So you could wind up with less debt. But also get a surprise tax bill, which is the equivalent of a surprise birthday party catered by Long John Silvers. Sweet chili shrimp wraps all around. Kids better come with a shot of Pepto Bismol in the house. That's all I gotta say.
