This week I am going to try and write to you about some of the credit card myths that surround this debt in general and debt settlement companies as a whole. Since my last post last week where I brought your attention to the United States Debt Clock , I would like to answer some of the questions we receive each day from our avid readers about general debt questions.
The first “myth” I will address is one of the most common questions we get almost every day. The question usually goes something like this: “I have been asked to cosign a loan/credit card for a family member (daughter/son) or close friend who is having debt problems of their own. I was told there is very little risk in co-signing a loan for a friend or family member. By cosigning a loan, I am doing them a favor, right?”
The truth is: You should never ever cosign a loan, unless you are prepared to never be paid back pay back the money you are cosigning for. Creditors love it when they can get someone to cosign a loan or credit card for somebody. It provides them with instant “insurance” should the initial borrower default on their payments.
Now, if you remember from our last post, anyone under the age of 21 is now required by law to have a cosigner on their credit cards. This was designed to prevent credit card companies from preying on college students who think they know more than you ever learned in your life. In these situations it may be a necessity. Or, an even better way to help out the student is just to add their name to one of credit cards with a credit limit of $500 or less.
Most people who cosign loans or credit cards usually do so for emotional reasons. Common sense however tells us otherwise. To begin with, we truly believe that the person we are cosigning for will really pay back what they own because we know them. Not necessarily so. What happens if that person loses their job, or takes on other debt that all of a sudden becomes more important than your debt with them. Then what?
Parents will often cosign for a young couple to buy a home. Why do they need a cosigner? Is it because they could not afford the home in the first place? Parents cosign a car loan for their son or daughter to help them learn to be responsible. Unfortunately, what son/daughter needs to learn first is: if you cannot afford to pay for something, do not buy it in the first place.
Finally, what happens if we do allow our emotions to get the best of us, we think we are doing the right thing and we cosign a loan? Typically what happens is we, the cosigners, end up paying the loan off, as well as carry the risk of damage to our own credit reports as well as those we cosigned the loan for.
Say for example you cosign for a car, the lender will not contact you when the loan is paid late every month, but your credit is damaged every month. The lender will not contact you before they are about to repossess the car, however when they do, you will now have a car repossession on your credit report. Then, they will contact you to pay the difference between the debt and the below-wholesale price they sold the vehicle for at auction, which is called a deficit. If the lender did contact you, there is nothing you can legally do to force the sale of the car, because you don’t own it; you are merely on the hook for the debt. When you cosign on a house you will get the same results.
Statistics show that about half or 50% of loans/credit cards that have a cosigner on them make all of their payments on time and pay off the loan or debt on time. The other 50% do not! Therefore, to reiterate: You should never ever cosign a loan, unless you are prepared to never be paid back pay back the money you are cosigning for.
The next credit card myth: All debt reduction companies are the same. Nothing could be further from the truth. For example, Nationwide Debt Reduction uses an incentive-based model to negotiate and settle debt. What that simply means is that the lower our negotiations can settle your debt for, the less you have to pay the creditor. It is a win-win for both you and the negotiators we have on staff.
Other debt settlement companies have been in business for five years or less and have not had time to build up relationships with the credit card companies in order to get these companies to negotiate and settle debt for less than 50% or less.
The debt settlement business is definitely a relationship-based industry. The longer you have been in business, the longer you have developed relationships with the creditors who are offering the settlements. They know who is who and are always willing to work with those people/companies that they know versus some new company that crops up every other year.
We will take about some more “myths” in the debt settlement industry this week. Should you have a particular question you would like to have addressed, please contact us toll free at 800-890-6658 for immediate attention.