Debt Consultants: Real Life Stories

Posted in Bankruptcy Trustee
Posted by J. Douglas Hoyes, CA, CPA, LIT, CIRP, CBV

debt-consultants-real-storiesOver the last few weeks I've heard an increasing number of debt consultant horror stories. It started with my article a few weeks ago about The Problem with Debt Consultants, and since then the number of horror stories appear to be increasing. We even discussed it on the radio:

Here are the problems: There are no formal qualifications to become a debt consultant, and they can't offer any legal protection. Unfortunately they can spend a lot of money on advertising, and it sounds good: they promise to reduce your debt. Of course "promising" and "doing" are two different things.

Last week I met with a person who heard the ads for a debt consultant called Cambridge Life Solutions on the radio. It sounded like a good deal. All they had to do was fax them all of their credit card statements, and open a separate savings account, and send Cambridge Life Solutions a void cheque. The deal was simple: Cambridge Life Solutions would withdraw $800 per month from her new savings account, and they would deal with her debt.

It sounded good, but this person was suspicious when the Cambridge Life Solutions representative told them to "not talk to any of the creditors; ignore them." Apparently this was because the creditors would "tell her a bunch of lies."

After three months of paying $800 per month to Cambridge Life Solutions, the credit card companies started sending letters, so the person I met with finally decided to answer the phone when they called. Guess what? None of the creditors had heard a word from the debt consultant! They had charged $2,400, and had done nothing!

Sadly, I'm not surprised, because I know how this "game" works. They want to get their fee paid first, which is often many hundreds, or thousands, of dollars. Then they want you to start saving money in your new savings account. If you can survive the phone calls and letters for a year or two, they hope that you will have saved up enough money to allow them to make a deal with your creditors.

So, for example, if you have $50,000 in credit card debts and bank loans, and if you haven't made any payments on them for 18 months, it's possible that the creditors will be willing to accept a cash settlement of 20 cents on the dollar, or $10,000. Makes sense, but ask yourself these questions:

  1. What are the chances that I can save up $10,000? I'm in financial trouble now, so saving money is very difficult.
  2. Will I be able to handle the stress of constant phone calls and letters for 18 months? Will my family be able to handle the phone calls?
  3. What will my employer think if I start getting phone calls at work?
  4. What happens if the credit card company decides to take me to court and sue me and garnishee my wages?
  5. What if the credit card company won't accept the deal?

Those are very good questions, and they illustrate the problem with using a debt consultant. Unless you have access to a lump sum of cash, and you are not worried about legal action, paying a lot of money to a debt consultant is not the correct solution.

What is the correct solution? It depends on your situation. If you have $50,000 in debt, and you can afford to pay $800 per month, you might be able to simply keep making payments on your own. If you can afford to pay $400 per month, a consumer proposal might be the correct solution. Your situation is unique, so contact us and we'll walk you through your options (and we won't charge you an up front fee).

So here's my summary: before you hand over your hard earned cash to anyone, check them out. Ask to meet with them in person! You may not be a debt expert, but as a human being you have lots of experience deciding whether or not someone is trustworthy, so arrange a personal meeting, and then make your decision.