Wouldn’t you like to get your monthly credit card and loan payments reduced – guaranteed? Or if you’re carrying a heavy load of debt, wouldn’t you like to see it go away – again guaranteed? If you were to search Google on the term “debt relief,” you will find literally page after page of companies promising that they can do these kind of things.
Unfortunately, some of these companies are scams. They are run by con artists who make promises on which they can’t deliver. If you make the mistake of falling for one of these pitches, it could end up costing you hundreds of dollars in fees. You could be in worse financial shape than before. You would owe just as much as before, plus you might have additional penalties and late fees to pay.
The FTC has done its best
The FTC (Federal Three Commission) has investigated these companies and sued more than a dozen of them in the last few years. These scam outfits can be like whack-a-mole. The FTC or IRS slaps them down under one name and they pop up a few months later under a different name.
How they mislead clients
Debt settlement con artists mislead clients not just about what they can deliver but also who they are. They may claim to be a non-profit company when they are actually for-profits. This non-profit pitch makes customers feel confident about signing up for the service but it’s just a way to prey on peoples’ trust. They may also lie about their charges. They may say there’s only a small fee involved or may not mention fees at all. But when you send them money, you might learn much to your chagrin that most of it went to the company as a “referral fee” and not to pay down your debts.
Or as this video points out, if a company’s promises seem too good to be true, they probably are.
Tips for choosing a debt settlement company
Facing a mountain of bills can be frightening. But don’t sign up with any debt settlement company until you’ve followed these tips.
• Shop around. Compare several different companies. Try to get a feel for how they operate. If your credit counselor doesn’t spend at least 20 to 30 minutes on the phone with you to get a complete picture of your finances, you’re not really getting any counseling. So you should avoid that company.
• Get it in writing. Ask any debt settlement company you’re considering a lot of questions and write down the answers. Ask that everything the company says it will do be sent to you in writing
• Ask about fees. If you talk with a debt settlement company that is vague about its fees or reluctant to talk about them, go somewhere else.
• Check out its credentials. See what associations the company belongs to. Honest debt settlement companies typically belong to the American Fair Credit Council (AFCC) and the US Chamber of Commerce. They are also accredited by the Better Business Bureau and should have a rating of at least A-.
• Read online reviews. Be sure to check out the company’s online reviews. Even the best of these companies will have some negative reviews. It’s just the nature of the business. However, if you find more negative than positive reviews, stay away from that company.
Would you even be a good candidate for debt settlement
Not everyone is a good candidate for debt settlement. For debt settlement to be a viable solution, you must owe at least $8000 in debts. If not, the fees you will be charged could outweigh the savings you would get from having your debts settled. Second, you need to be at least six months in arrears on your debt payments. The reason for this is that no lender will be willing to discuss debt settlement unless you’re this far behind.
Look out for upfront fees
If a company requests or demands that you pay money up front before it starts your debt settlement process, avoid it at all costs. No legitimate debt settlement company will do this. Instead, they will, as explained in the next paragraph, take their fee only after your debts have been settled and you have approved a payment plan.
What a legitimate debt settlement company can do
No legitimate debt settlement company will promise to reduce your debts by thousands of dollars in just a few weeks. While they can get your debts reduced, this is a more time-consuming process. The way it generally works is that you start sending the company money instead of to your creditors. This money is deposited into an FDIC-insured trust account that only you can manage. While this money is building up, the debt settlement company will be negotiating with your creditors. When all of your lenders agree to the proposed settlements, the money that has accrued in your trust account will be used to pay for the settlements. However, this money will not be distributed until you approve a payment plan and allow the money to be released from your trust account.
So is debt settlement for you?
Debt settlement can be an excellent way to pay off debts but there are several caveats. First, be sure to follow the tips in this article to make sure the company you’ve chosen is honest and reputable. Second, understand that debt settlement will have an effect on your credit score as will a bankruptcy. However, it will be much less severe. Most experts believe that a bankruptcy will cut your credit score by about 200 points. In comparison, debt settlement may reduce it by only 80 points. But when all is said and done, debt settlement can be much better then continuing to labor with that mountain of debt.