I recently worked with a Michigan woman who was able to rapidly settle her unaffordable credit card bills. Nichole later became the focus of a Detroit Free Press article about cutting debt. The article seemed to be as much about warning people from using debt settlement companies and debt negotiation in general, as much as it was centered on the success the CRN member had cutting her credit card debt down.
The article was correct in saying many companies have taken outrageously high upfront fees. Fees charged to most Michigan residents by debt settlement firms are often more than 20% of the debt you submit to the company to negotiate.
Nichole settled $35,000.00 of debt for $12,000.00 by utilizing the program that CRN set up for her. Had she hired a typical debt settlement company to negotiate her debt, the average fee would have been more like $5,250.00.
Michigan Debt Settlement Fees are Not Capped
The fees you pay to a debt settlement company will have a huge impact on your success with debt settlement. Each time the company negotiates a result for you, you are prolonging your success with the next account in line to be settled because the success fee is due for the work settling the first account. And because most debt settlement programs are sold to you as an affordable monthly payment you put into an escrow account (that is how you save money to pay settlement deals), you can be paying fees for months instead of saving to settle more debts.
Another concern is how debt negotiation companies will send notices to your credit card banks telling them that you are now working with them. This means the lenders will know that you are paying a settlement company instead of them. Banks will have different reactions to this. Some become more aggressive with how they go about collecting at that point, which can mean placing your account with a collection attorney licensed in Michigan along with authorization to sue you if necessary in order to collect.
In my experience, most debt negotiation companies do not look to settle your credit cards with your original lender. They mostly wait for accounts to charge off. Charge-off typically happens at about 6 months after you stopped paying your credit card. Once creditors charge off bad debt, they will generally do one of three things with your account, assign, sue or sell.
You can still negotiate your bills when they are sent to someplace else, like debt collection agencies (most debts are settled with debt collectors), but you can often save more by getting the settlement negotiated with your bank prior to charges off (though there are exceptions where the best deals happen with outside third party collectors).
Nichole was portrayed as still hoping that settling debt was going to work for her when it stated “She’s crossing her fingers that this arrangement works.” That was a bit odd, in that Nichole was interviewed after finishing her settlements. The program worked as it was designed to, and she was done with all negotiations in less time than the vast majority of debt settlement customers nationally.
Nichole got out of debt in 6 months.
What Happens to Credit Scores when Settling Debt
Negotiating lower lump sum pay offs is a debt relief option designed for people who cannot afford to make on time monthly credit card payments. And because credit card banks do not offer to settle bills until they have gone unpaid for sometime, credit scores will drop, and often precipitously.
What happened to Nichole’s credit score?
From an email exchange I had with her after her last debt was settled, but not yet showing resolved on her credit:
“…Two days ago, I re-ran my credit and 3 of the 4 settlements had already posted. My credit was already 671-677 from each of the three bureaus! I think my credit ranged from 670-710 in the year prior to starting the settlement process so this is amazing.”
Now, you cannot think that will be the case with you, as each persons credit reports are unique, and how soon people’s credit scores will bounce back after settling will depend on a host of things. Do not take Nichole’s experience as an indication of what your credit scores will look like after your settlements are done.
And I should point out that the point of debt settlement is to eliminate the debt. Credit scores recover, quickly or slowly, and there really is no debt relief option that will spare your credit.
There are some good debt settlement companies out there that can help you in Michigan. I am obviously a big fan of negotiating debts the way we helped Nichole, which is helping her to do debt settlement on her own.
If you need debt settlement help, or need help considering other options too, post some details about what you are going through in the comments below for feedback.
I just signed up for debt settlement company to help me pay and close my accounts but two which I plan to pay off my own and keep. My debt is a little over $12,000 and I’ve fallen behind a few payments as well as my student loans hitting my credit. I was very skeptical but I went from 700 to 400 in one year when I became a single mother. So I’m paying monthly for 2 and a half years until the accounts are closed. Three have been closed out now. What advice do you have for me? I want to honestly pay them off in two years but how can I also boost my credit score and report back up in the least amount of time??
Your credit score rebuilding efforts cannot truly gains steam until all of those debts are settled. You can maintain the payments on the 2 accounts you are keeping open, and that will help you bounce back later on when you only have paid collections showing. But there is no reason to apply for any credit – to rebuild – when you have unpaid collections.
It is just going to take time.
I was just contacted by a debt settlement company. I have not been late on any payments and have a pretty diverse credit history, all positive, with mortgages, cars college loans and unsecured debt all being paid on a timely basis. But my credit card debt has gotten large $14000, and I am just able to make monthly minimum payments which has been tough. I do have a daughter going to college in the fall but I am hoping to only take federal student loans, though one never knows. What the debt settlement company offered me was 35% off my credit card debt, a monthly payment of $200 for 45 months and they took their fees from that, for a total paid of $9000. The company is Karma Capital Inc. Is this really something I can do on my own without them? Also I live in NY. Can you advise me? Thanks
Most people can settle their debt successfully on their own with some basic understanding of how the process works. I am concerned about a 45 month program and also the parental student loans you are looking at this summer.
Who are the creditors you owe and what is the balance on each account? I can better assist you with feedback if I have a clear picture of the debts involved.