I’m So Embarrassed About My Money Situation. Can You Tell Me The Truth About Debt Settlement?- Gloria


“Hi Steve,

I am a 23 year old college student and in dear need of finanical help and advice. This is such an embarrassing situation and it is taking a lot of me to ask for help. This is the first time I am speaking about my situation.

I have been on my own since I was 19 years old, going to school full-time and working minimum wage paying jobs.

During the past 5 years I have created about 16k in credit card debt (I have 3 credit cards, 1 from First Financial bank and 2 from Bank of America). I will graduate college in May 2010 and will have to start paying my 10k student loan that have generated about 3k in interest fees (and counting).

As of right now I am about 30k in debt, got laid off from my job this past February and is going through a hardship. Because I was desperate, I turned to a debt relief program (Freedom Debt Relief). I wasn’t serious about it when I first contacted the program but after speaking with a representative, before I knew it, I was in the next step of finalizing my contract. I don’t trust a lot of people and is weary of my trust with this company. I signed on board in April and have made two payments to this company so far and have made none to my credit cards.

The monthy payment I am making to the debt relief program is close to what I would be making to the 3 credit cards – a little above minimum payment. I have been receiving phone calls from the creditors and it is so difficult. I have been avoiding unknown numbers. The company says they will only work with my credit card debt and can work it down to 11k and will be paid off in 2-3 years.

I am recently engaged and my fiance has no clue about my debt situation and that I have signed on with a debt relief program. I just found out that his credit score is down the drain because he defaulted on some credit cards a few years ago (he was going through a divorce) but he is in good financial terms because he has a good paying job. My credit score was in the 700’s in April, when I last checked. I have always paid my bills on time, etc. I just have a lot of debt. I am told that my credit score will hurt badly if I continue with the debt relief program since it will take 2-3 years to settle all of my debt.

I am at a lost on what to do, be done with the debt relief program, pay the late fees I’ve incurred on my credit cards, continue making the minimum payments on them and keep the large debt…. (I will probably pay for the rest of my life)

Or stay with the debt relief program, let my credit go bad, and HOPE I will be debt free in 2-3 years?

I am concerned about my credit score more than ever now because my fiance has bad credit. He doesn’t even have one credit card so right now we are forced to pay everything in cash. I have no problem making the minimum payments to my credit cards, I know I can find a way to make the payments just as I have always done, it’s just the debt is so large. I want to take responsibility for my debt and want to do what is best for myself and my future.


Should a college student let her credit score go bad for the sake of saving money through an untrusted debt relief program?


Dear Gloria,

Thank you for trusting me to ask your question. I have no vested interest in you choosing any answer I give you and nothing to sell. I’m just offering you advice based on years of experience in helping people.

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You appear to be enrolled in a debt settlement program. Debt settlement is a tricky subject. I understand the philosophy behind debt settlement and I’ve seen it work wonders in specific situations.

I am often contacted by groups and people that praise debt settlement and suggest that I speak out to harshly about it. After all, you are told that it will reduce your debt for less than you owe in a short period of time, and that sounds wonderful.

But my point of view is that of a guy that has actually done debt settlements and seen the issues that arise. In general, I think that the problems are greater than the benefits for most.

The problem areas with modern day debt settlement are:

  • Tax Liability – Forgiven debt is taxable as if you earned that money. You will need to pay income tax on that money at your regular rate. Many people are surprised by this and wind up owing the IRS money. The last folks you want to not be able to pay.
  • Missed Payments – Debt settlement works by withholding payments from your creditors in hopes they will get desperate enough to take less than the full amount you owe.
  • Bad Credit – When payments are not being made to your creditors it shows up on your credit report and stays there for seven years. Also, the amount of debt written off will appear as a bad debt on your credit report.
  • Collection Calls – A debt settlement company has no power to prevent you from getting collection calls when you are withholding payment from the creditor.
  • Getting Sued – If you are not paying the creditor, they can always sue you. Working with a debt settlement company does not prevent you from being sued. If you are sued, you will lose. What’s your defense, “I was sending payments to someone else.”
  • No Coordinated Plan – If you have multiple creditors and you don’t reach a settlement with all, then you may be still left in a difficult position. The time to settle is when all creditors agree and then do it with cash on hand in a lump sum payment.
  • Big Fees – People don’t seem to understand how much debt settlement companies are charging or that the initial money that is paid to the companies is being taken as fees and not saved for creditor payments. Fees range from 15% of the total debt to $5,000.
  • Many Will Never Settle – Many people will pay debt settlement companies for a while and then bail out. Most, if not all, the money paid to that point will be kept by the settlement company for fees.

I think that many good people are attracted to debt settlement as a way to resolve their debt situation because they are intrigued by the prospect of getting rid of their debts in a short period of time for less than they owe. It’s a natural reaction but it is also a reaction that can lead people into trouble.

In a perfect world I would love it if anyone considering debt settlement would also talk to a bankruptcy attorney. Not to go file bankruptcy, but to better understand all the options available to them and be able to make a better and more informed decision that is right for them.

Sure, bankruptcy attorneys sell bankruptcy, but guess what, debt settlement companies sell debt settlement as a magic cure. Only by listening to both sides can you understand what the truth is.

So where does all of this leave you?

From a practical point of view you’ve got debts you can barely pay now. Soon you will graduate from college, start paying student loans and you are getting married at some point. After you graduate you may find expenses increasing if you move for a job, get a new apartment, start commuting for work, etc.

If you are barely getting by right now, I think that it is more likely than not that with upcoming life changes, any monthly payment plan you can barely meet now will fail at some point in the next two to four years. When that happens, any progress you made to get out of debt will be eroded or eliminated.

Rebuilding your credit is actually fairly easy but first we need to close the door on this old debt first.

I think it would be extremely beneficial for you to pull your consolidated credit report and ask your BF to do the same. Use this consolidated credit report, it’s the one I use and love.

Next, sit down together and review both of your credit reports. If you can share the most intimate parts of your lives, you should be able to share this stuff. Once you are both on the same page with regard to your financial situation, then we can start making plans on what the future path is for both of you. Don’t let the reality of your credit situation take control of your life. Own it. Deal with it.

Based on what you’ve shared with me and the decades of my experience with debt issues, my gut is telling me that any debt settlement or credit counseling approach is probably going to fail based on your situation and time in your life. In order to move forward you may have to consider bankruptcy as a way to end the old debts and turn your attention towards building a better financial future instead of trying to repair your past. Find a local bankruptcy attorney, schedule a free bankruptcy consultation appointment and go talk to them.

Being embarrassed or ashamed about your situation is perfectly normal. When I lived through this stuff I felt exactly the same way. But Gloria, it does not define you, it actually just falls into the bucket labeled “Shit Happens.”

In all my years I have met very few people that set out to intentionally screw their creditors. Most people wind up in a bad situation through a series of events that were never planned.

You can blame yourself all you want to but you’ve got to come to peace with this and take ownership for dealing with it.

From the pain and angst of this situation, some good can come. I want you to always remember what it was like and how you felt to live through these issues and then use those memories to help someone in the future with advice, compassion and consideration. Pay it forward.

Let me know what you decide to do and

You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.

Steve Rhode

2 thoughts on “I’m So Embarrassed About My Money Situation. Can You Tell Me The Truth About Debt Settlement?- Gloria”

  1. Gloria, take every word Steve has said very seriously. You are young and have many years to do wonderful things. Deal with your debt now.
    I am not a proponent of debt settlement. I am a fan of getting quality advice, like Steve gave you, from more than one sector and then making an informed decision. I practice bankruptcy and am a proponent of making the best decision. Start with Steve’s book, found online on this site. Create a budget, understand your living expenses, your debts and your income. You may find a way to resolve your debt situation without bankruptcy. If you can create a 5 year plan to repay your credit card debt you are on your way.
    Keep in mind that your student loan debt cannot be very easily eliminated by debt settlement or bankruptcy. You will have to deal with that debt. However you can contact them and and possibly get new payment options or deferrments.
    Lots of Luck


    Jeff Jacksons last blog post..Ohio Bankruptcy Attorneys – Jones & Jackson, LLP

  2. Gloria,

    It’s absolutely normal to feel the way you do right now, these situations are happening to thousands of Americans. Many people find themselves in these situations due to the easy ability to gain credit when you have a good score but when a lack of budgeting, or life happens, you almost always become trapped.

    Debt Settlement is a viable option if you have enough money in your budget. The problem is many of these companies want to make you feel like it’s all going to go away in just a few days and it doesn’t. A debt settlement program takes self control of spending, and determination to become debt free at all costs, meaning the end solution will out weigh any of the scary consequences.

    If you plan to get married to someone, there shouldn’t be anything to hide from them. I’m sure if you spoke with him about your situation, he would understand- you mentioned he had some past credit issues. When you two discuss budget, bills and future plans you can both work together and have each other to make it through this struggle.

    If your combined budget allows for the necessary money to survive the debt settlement program, I would suggest to stay in it, you probably won’t get a refund, and if you do then choose to pay the creditors, you’re money is still gone due to late fess, finance charges plus you still owe the same amount and still have to pay more!

    Its unfortunate many debt settlement companies have tricky fine print just like the credit card companies and only care about their bottom line and not yours!


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