Debt Management programs often charge outrageous up front fees and provide little or no benefit to consumers.
This topic has been coming up for me quite a bit at my office lately. I speak with a number of people each day who have enrolled in a Debt Management program and are not happy with the results.
The first thing that strikes me is the cost of these programs. I have had clients with $50,000 or less in debt and they are being charged $7000 or $8000 to enroll in these programs. That is absolutely amazing to me. They end up paying a few hundred dollars or so each month until that fee is paid off in full. That obviously can take a year or so to pay off. My fee, and I would say any attorney’s fee, to defend against the lawsuits that are filed by the collection agencies and/or credit cards that comprise the debt is in the range of 10% to 20% of that amount. I honestly cannot believe that people agree to pay these outrageous amounts to these companies.
My opinion would change, of course, if there were an actual benefit to using a Debt Management Company. Now, I am not saying that all of them are bad, that would be an irresponsible comment on my part. However, in my experience in discussing these situations with clients who have previously enrolled in these programs, most have not received any benefit whatsoever.
In a best case scenario, I have seen a few clients receive a reduction of their debt in the 30% to 40% range. That is not bad at all, but it is something that you can often do yourself if you can make a lump sum payment to a creditor. Keep in mind, though, that with that 30% reduction, you are still paying the debt management company a few thousand dollars to engage in the negotiations, so where is the real benefit? You could very easily hire an attorney at $150 or so per hour who would spend perhaps 2 hours total in doing the very same negotiation.
In a worst case scenario, I have seen many, many clients who have received no benefit whatsoever. They pay the debt management company fee, up front, and then the company either cannot negotiate well or they do nothing or they have taken too long to act so the creditors simply file lawsuits. In my experience, I have never seen a debt management company provide any real assistance once the lawsuit is filed.
In conclusion, do debt management companies work? The answer is a resounding NO.
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