What else did the non-profit debt collection companies do to make up for the 45% pay cut that was given to them by the banks and credit card companies?
So far, they had kept the first payment the new client made and never distributed it to the client’s creditors (now outlawed in most of the states), they had you make a deposit that they would refund to you when you finished the program. The only thing wrong with the refunded deposit is that only 1 out of 5 people ever finished the program, so the non-profit companies know they will end up keeping the deposit to use for their overhead.
So what else did they do?
They raised their monthly fee that you have to pay for their service. This fee runs from about $25 to $75. Raising the monthly fee simply means you pay more to get out of debt.
It’s not the worst thing that has been done. I think the worst one that still exists is this – the promise you will get out of debt in 4 to 5 years. The non-profit companies advertise this on TV or the radio. It’s really unbelievable that they just do it as if everyone will be able to get out in that time period.
Here’s the catch – the representatives of the non-profit companies will meet with you and go over your financial situation with your creditors. They tell you that they will work with the banks to try and drop your interest rates. Here’s the truth no non-profit company ever negotiates the interest rates with the banks and credit card companies. Never ever!
Instead, the banks and credit card companies send to the non-profit companies what the interest rates will be each month.
About 20 years ago, the interest rates at the non-profit companies were 4 and 5%. Now, they run 9 to 10%. It isn’t that the non-profit companies became bad negotiators and couldn’t get their way any more. It was that the banks and credit card companies raised the interest rates they were willing to take.
So, at 9 – 10% interest rates, how long do you really think it will take to get out of debt through the non-profit companies? It’s 8 to 10 years!
The profile of the person that gets through the non-profit program runs between $8,000 to $15,000 in debt. That profile could get out of debt in 4 to 5 years.
The rest of you that have much higher debt, it won’t happen in 4 to 5 years. It goes up to 8 to 10 years.
In order for you to get out of debt in 8 to 10 years, you will need to pay more each month. But, isn’t that the problem in the first place – you can’t afford the high payments?
My advise is to check the numbers that you get from the non-profit company and see if it really adds up to getting out of debt in 4 to 5 years. I had a guy in Texas once decide to go with the non-profit company. He was in the Army and was going overseas so he wanted to set things up for himself.
He and I went over the numbers he was given and he owed $23,000, the average interest rate was 9% and he had a Discover card that did not agree to lowering the interest rate. Per the debt counseling program numbers, he was going to get out of debt in 4 ½ years and would only pay $2100 in interest on the $23,000 he owed.
That was just impossible! He realized it and decided not to do their program.
So, check the numbers yourself and see if it really makes any sense. Remember, the interest rate you are given still is a compounding interest rate, not a flat interest rate.