The economy is going to shit, which means poeple's debt is going up.
If you get a letter from anything like "Negotiations Department" but there is no company name listed anywhere obvious, it's from a company like Debt Advisors of America (DAA). They will tell you that the credit companies are giving them your information because you've a) reached a threshold of difficulty making payments or b) your credit score drops significantly over 90 days.
This is bullshit. DAA and other "consulting" firms PAY for your credit information and get it using services like TransUnion and other credit reporting agencies. They buy it like you buy cheetos. Credit card companies do not want to lose money, and these "advisory" and consolidation companies promise you just that by lowering your debt in a "settlement."
Anyone with more than a 30% debt threshold (30% or more of your total credit is used) gets bought by these companies, and they send you forms that are worded as if there will be some form of extra fee or punishment from the credit companies should you not use their services. The letter will have something like **Failure to Respond** on it in bold letters. That is a trick to scare you. Nothing bad will happen if you continue making your monthly payments without using these companies.
They tell you that they will consolidate your debt. Sure! For a price, because they are a company that wants to make a profit. They buy excess debt for a low price and charge you double for it. And you end up paying MORE for that monthly price than you would pay by continuing to make separate payments as you have been.
For example, if you have 3 credit cards and pay 3 separate payments totaling $700 a month, your new consolidated price will be something like $779 in one simple monthly bill, because these companies are out to make a profit. Sure, your monthly payment to the credit companies is now only $609, but you still owe the advisors for their "service" of buying your debt.
Remember: debt consolidation and other "debt help" agencies are for people who are looking down the barrel of bankruptcy, not just people who have debt and are making regularly scheduled payments. This is for when you have almost no other option, not just for when times are hard.
Do not let them fool you. You deserve better.
Making the minimum payment will cost you at least twice as much as the initial debt. On your statement, there is a box that tells you if you make the minimum payment it will take you X months to pay off X debt. Right above that it shows you that if you pay the minimum plus the monthly interest, you'll pay a third of that and be out of debt faster.
Your credit score is a snapshot of how you manage your debt. You can have relatively high debt and still have a good credit score if you never skip payments, never have a late payment, and maintain credit lines for several years. Don't open and close new accounts regularly.
You have to have debt in order to have a credit score. If you pay off your credit cards BEFORE the statement comes out, your credit score will not go up.
When you can, keep your total credit debt to 10% of your whole credit limit. If all you have is a Home Depot card with a $500 limit, keep your monthly statement debt at $50 or less as much as you can. Once you pass the 30% or higher threshold, you will start getting letters like these and your credit score might drop.
If you HAVE to file for bankruptcy or use a debt consolidation service, your credit score will drop significantly and it will take years to build it back up. Remember that both of these options are last resort.
If you are having financial trouble, there are several ways to help yourself and to get help:
Please remember to pay your rent/mortgage FIRST, because there are significantly fewer programs in most countries to help with those.
Utility companies can be haggled with, especially if you've been a long-term customer. Sometimes a simple phone call with "hey, times are hard, and I only have a third of my bill, pls help" is enough to get you on a lower payment schedule.
Food banks are BEGGING people to use them. It does not matter what your income is, if you have kids or not, or if you're disabled (but especially if you're disabled), it's free food. Use it. The average American costs the local food bank $4-$10 per visit, and you get 1-3 weeks worth of food.
And yes, even credit card companies can be haggled with to a point. The best way to snag a lower interest rate is to have a history of making full payments on time. Late and missed payments look really bad on a credit report.
Live within your means. This does not mean cut out coffee and avocado toast from your weekly expenses. This means that if you make $1,000 per month and pay $900 per month in bills, do not go out and get a new car with a $600 monthly payment. That leaves you a net negative every month. Be aware of what you have available.
And if you are in a position to help other people:
Donate to your local food bank. They get food wholesale and tax exempt, so their budgets go further.
Buy medical debt. Organizations like Undue Medical Debt can buy $100 in someone's medical debt per every $1 donated.
Be aware of programs and organizations in your area that help people with debt, cost of living, food, or housing. Most local organizations accept private donations that are largely tax deductible.
