Is Debt Settlement a Scam?
Avoid Scammy Settlement Programs
Debt Settlement programs are usually quite more expensive than people expect. I have client after client come to me after they have been enrolled with a debt negotiation company for one or two years, paying $500/month or more. One day they open their statement and see that they only have $1000 or $2000 in their “savings account.” All the rest of the $3-5k they have paid goes to fees and junk charges for the debt settlement company.
When you enroll with one of these debt settlement operators, they charge you a significant lump sum amount (often up to 10% of your total credit card debt) as “admin fees.” In addition, you have to pay a monthly service fee, typically $75 or so. The debt settlement company tells you to stop paying your credit cards (but their contract will specify that they never gave you this advice). They collect your monthly payment, which is supposed to eventually be passed on to your creditors. Your money is saved in a trust account in the meantime.
Once you have “saved” enough money, the debt settlement company negotiates with the creditors on your behalf and is supposed to negotiate a 40-50% reduction in your total card balance. This may take several years depending on the amount of money you owe to your creditors, and also on your present ability to repay your debts.
In the meanwhile, your creditors can sue you , which will cost you extra for an attorney to defend, for filing fees, and more. And – while the settlement negotiation is continuing, your cards will be in default, busy racking up unconscionable late fees, increased interest rates and more.
These companies do not reveal to you how the debt settlement program works before you sign their contract. Nor do you have a clear idea of the transactions even after you enroll with them. Many clients tell me that the statements are unreadable, and that it takes multiple phone calls to get any information at all from the debt negotiation company.
Oh – and the fact that the company is non-profit? So what? They can still be scammers or unethical operators. Many unscrupulous jerks hide behind the legitimized veil of non-profit status.
What is your alternative to Debt Settlement Companies?
Get a free consultation with a bankruptcy attorney in your area. Bankruptcy is not for everyone, but debt negotiation companies are rarely for anyone. Bankruptcy erases all of your debt, in many cases, it usually costs you significantly less than one of these debt settlement sharks will charge, and you have the benefit of a licensed attorney to guide you through the process.