By Ryan C. Wood

Well, no, usually not.  Debt settlement is different than debt consolidation.  Debt settlement is offering lump sum cash payments to settle the debt and have the credit card company forgive some of the debt owed.  You absolutely do not need to pay someone to do this.  The problem most people run into is they do not have the cash to settle all of their debts.

Let me tell you about debt consolidation.  First of all, you do not want to do business over the phone with a company in Florida or Southern California if you live in the Bay Area or another state.  It is best to be able to go to a business’ offices and look the person in the eye you will be giving your hard earned money to.  Especially when considering a debt consolidation company or bankruptcy for that matter.  I think that goes for everything these days unfortunately, unless it is a large corporation like Amazon.com.   I cannot tell you have many clients we have had to fix their bankruptcy cases because they chose to use some attorney that is hundreds of miles away and that they have never met.  If something goes wrong what jurisdiction would you have to sue the debt consolidation company in?  I can tell you that the agreement you sign will probably have a jurisdiction listed that is where the company you retained is located and not where you live.  That is a huge problem if you have to sue them in Florida or some other part of California where you do not live.  It makes the cost of litigation sky rocket and makes it not worth suing to begin with most of the time.  This is what these companies are counting on too.  If you pay them $1,000 – $4,000 or make a monthly payment to them at around $100 a month, are you going to pay an attorney $200 plus an hour to sue them in the hope of getting your money back?  Litigation is expensive and the cost of litigation is unfortunately a roadblock to getting justice.

Second, debt consolidation is the wild wild west.  There is unfortunately little government oversight of these companies.  If you are thinking about calling a debt consolidation company please Google their name before calling.  Google is very good at what they do and will find all the information you need about the company.  Also Google the companies name and the word complaints to see what pops up.  Unfortunately anyone can post negative reviews on many different types of websites without a shred of truth to the complaint.  It is a big problem, but at the same time, if there is complaint after complaint year after year you know something is not right with that company.  You can also Google the companies phone number to see what comes up.  Many times these debt consolidation companies change names over and over again to trap new unsuspecting people.  In my opinion any company asking you for money to provide any type of debt consolidation is a crook.  You can do it yourself for free and see what happens.  When the mortgage crisis first hit many crooks started loan modification companies and charged thousands of people upfront fees for loan modifications without doing anything to obtain loan modifications for the clients.  The percentage of successful loan modifications is so low that California passed a law that makes accepting upfront fees for loan modifications a criminal act.  Loan modification companies in California may only accept a fee once a loan modification is signed and recorded.  The same needs to happen under Federal Law for debt consolidation companies.  They should only get paid if they actually do what they say they can do.  Right now that is not the case.

A debt consolidation company will say they can negotiate a better percentage rate of reduce the amount you owe to a credit card company.  Ask them for proof in writing from the credit card company regarding any reduction in amount owed or percentage rate.  Do not trust what they send you on their letterhead.  Anyone can list your credit cards and reduce the amount owed and the percentage rate to show you how you can save money.  Again, why can you not do that yourself?  Believe me, you can.  Bankruptcy lawyers do not worry about these issues when filing bankruptcy cases for people in need.  Everything bankruptcy attorneys do is pursuant to the Bankruptcy Code and by court order.

Finally, if you do not pay your credit cards for long enough credit card companies will send you settlement offers for lump sum cash payments without paying anyone anything.  The problem is that usually one of your credit card companies will sue you and that is when you should give a bankruptcy attorney a call.  Most people do not want their wages garnished or bank accounts levied on to satisfy a judgment.  Others are more proactive and seek the advice of a bankruptcy lawyer well before a lawsuit is filed to stop the harassing phone calls and tie everything up in a nice neat bow and just move on with life.  Everyone is different and there is no right or wrong way to approach your debts if you can no longer pay them each month.  Just please, please, please thoroughly investigate a debt consolidation company before giving them any money.  I hate it when a client comes in and has paid a debt consolidation firm thousands of dollars for nothing and I have to file bankruptcy for them to once and for all make it all go away.  To add injury to insult, our fees for a no asset Chapter 7 bankruptcy case are usually far less than what a debt consolidation company charges.