Ask Chuck: Are Debt Consolidation Companies a Scam?
To learn Biblical answers to your financial questions, you can #AskChuck @AskCrown your questions by clicking here. Questions used may be lightly edited for length or clarity.
Dear Chuck,
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My husband and I could really, really use some financial advice. We are both in our 20's, have a baby, and have been married for a little over 4 years. Unfortunately we've acquired quite a bit of debt, mostly from medical bills because I did not have insurance. But we do have some debt from other sources also. I was wondering if going through a Christian debt consolidation company would be a good way to go. I'm very overwhelmed and would appreciate any help.
Sick of Medical Debt
Dear Sick,
My staff and I are praying for you, with the hope that even as you and your husband work toward financial strength that you are physically well too. And you are certainly not alone in struggling with this issue.
About 1 in 5 people (20%) under age 65 who have insurance reported difficulties in paying for medical debt, according to a survey sponsored by the Kaiser Family Foundation and the New York Times. However, for people without insurance that number rose to more than half (50+%)!
The first step is to get your mind around the big picture. Find a quiet relaxing location with your husband (this may have to be out of the house for a date night) and sit down to work through a budget that details all your debts and other obligations as well as your income and assets. Be sure you have a clear picture of your total financial situation.
Before you can get out of debt or transition to a functional budget you need to understand just where you are today. Your first priority is to be sure you are not spending more than you make so that you can begin to pay off debt with surplus income or assets. Crown has some free tools that can help.
As part of that process, gather up ALL of your medical bills and try and read the fine print. Faulty coding or the interpretation of the financial office can impact your bill. In 2012, the Cleveland Plain Dealer did a series of articles that showed as many as 289 people were adding items to medical bills. Mistakes can be made when that many people can add a charge, and often are.
US News reported recently, "According to Medical Billing Advocates of America, a national association that reviews medical bills for consumers, 80 percent of hospital bills contain errors."
I've found that hospitals and doctors are usually willing to discuss a payment plan, and it's worth talking to them directly to avoid being sent to a collection agency.
Now humbly talk to some of these creditors, share your circumstances and see if you can establish a mutually workable plan to pay back your debt.
You are correct that credit counseling can be a good idea, but is only as good as the person or company you are working with, so let the buyer beware, especially of debt consolidation companies. Horror stories about people signing a contract for debt consolidation only to be burdened with a large loan at an exorbitant interest rate happen all the time. And often, debt consolidation companies charge a fee for their services — money in their bank no matter what happens to you. Be sure to critically evaluate any company that is going to handle your money.
Crown has a valued partner, Christian Credit Counselors, a not-for-profit whom we have worked with for years, and they can assist you in making good decisions with the consumer debt you may have. But do your research. Before you hire a company, take time to look at their track record and ask hard questions.
And to be clear, paying off all debt should be the goal for Christians. Psalm 37:21 notes, "The wicked borrow and do not repay, but the righteous give generously."
But let me address something briefly which you have not asked about: declaring bankruptcy to get rid of the obligation.
I want to write more fully on the subject of bankruptcy in a future column, but here are a few key points to consider. Your creditors want their money, and usually prefer some kind of payment plan. Take advantage of their desire to keep the finances simple and to ask for some debt forgiveness and a payment schedule. View bankruptcy as a last resort.
As Christians, we need to keep our promises, including our promises to pay our debts. I have found over the years that when someone communicates to a creditor a sincere desire to honorably close out an account, terms can usually be agreed upon. Avoid bankruptcy if you can, as it will take time to restore your good financial name.
And consider taking a free MoneyLife Indicator evaluation that will be a snapshot of your financial thinking — showing you how your goals and dreams compare to your financial actions.
I know it seems overwhelming now with all your other responsibilities, but don't give in to fear. To get free of this debt, you'll need to persevere and call upon the Lord for His help. Remember, He is faithful to do His part, now faithfully do yours, taking one day at a time.
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