You’ve tried calling each credit card company to work out a debt settlement plan, but they aren’t interested.  Interest rates have only skyrocketed in the past year.  The bills keep coming and you are drowning in debt.

What if your “minimum payments” on credit cards add up to $ 1,000 a month?  Few debtors can honestly afford repaying such a high amount without using other cards for their daily living expenses.  It becomes a game of robbing Peter to pay Paul.

It would seem like a miracle for a “credit counseling” company to get your payments down to $750 per month by decreasing your interest rates.  Who wouldn’t want to save $ 250 a month?  Although saving $250 per month may sound good at first, here is the bigger question.  Do you honestly even have the $ 750 available?

If you can only afford $300 a month, a plan that requires you to pay $750 per month will not do you much good. You are still in debt. For this reason, “credit counseling” companies and “debt management” companies focus exclusively on the amount of savings they offer, rather than whether you can actually afford your payments.  Many clients who ended up filing bankruptcy in Rhode Island wasted thousands of dollars on unrealistic repayment plans first.

Added to the misleading nature of “debt management” company claims are hidden fees and fraud. Consumer Reports claims that

” Many [“debt management” companies] advise rolling high-interest debt into a second mortgage. But by using your house as collateral for what was unsecured debt, you risk losing your home. Some firms can persuade creditors to cut your debt. But if you miss payments they can later back out of the deal and demand full payment, potentially landing you in bankruptcy court after you’ve already paid a large portion of your debt.”  Consumer Reports online report, June 2005.

Filing Chapter 7 bankruptcy offers a straightforward, honest, effective alternative to the misinformation propagated by “debt management” and “credit counseling” companies. Federal bankruptcy laws were created by Congress for the purpose of helping hardworking citizens pay off their debts.  Unlike DMPs, bankruptcy actually reduces both interest and debt. In fact, bankruptcy is the only way to completely eliminate a debt.

Bottom line: Before you look into signing up for an unrealistic debt management plan, consider consulting a qualified Rhode Island bankruptcy lawyer.