A co-worker of mine, Dan, just started looking into personal finance, and he took the Dave Ramsey program this past weekend. Today, he presented me with this gem, “FinanceTiger, you should just stop paying on your credit cards and go cash-only like I am.”
Interested, I asked him his line of thought.
“Whatever debt I have, I’m stopping all payments on it, and I’m going to let my lawyers handle it.”
“You have lawyers?”
“Yeah, the guys over at [debt settlement company name redacted] told me to do it. Since Dave Ramsey said I should get rid of my debts as quickly as possible, this is going to be great. I don’t get why people say getting out of debt is so hard. Since I got this program, I’ll have knocked out almost $25,000 in debt in two months. I should go buy a house next month.”
Rarely am I speechless. If I were in the upper Midwest, I think the phrase to say would have been along the lines of “Oh, Dan, I don’t think that’s a good idea” which is roughly translated from Midwestern to American English as “Dan, you are an effing idiot.”
So, what’s going on? Is Dan going to get this sweet deal, and get out of all this credit card debt? Nope. Dan is a sucker. Dan has likely been victimized by one of what seems to be a million “debt settlement” companies. These companies will find suckers (like Dan) with over $10,000 in unsecured credit card debt and get them to stop paying the credit card companies, and pay them instead. After a few months of collecting Dan’s money (6-8, usually), they’ll get in touch with his credit card companies and settle for as little as possible, while keeping the rest of Dan’s money for themselves. Dan will then get a 1099-C from the IRS for the difference between the settlement amount and the actual amount he owed. Most banks won’t even deal with the settlement companies, and opt to instead get a civil judgment against the borrower that can then be enforced as a lien on real property.
The good news is that Dan knows this now. The bad news is that his plans for the next 8-12 months are shot.
Until next time, snack on some more debt (and don’t be like Dan)!