Many consumers are all too aware of the stress that comes with mounting credit card debt. The Better Business Bureau warns over-burdened consumers to beware of companies that promise to cut their bills in half by negotiating low payoff amounts from creditors.
Debt negotiators or debt settlement companies promote their services to reduce a consumer’s debt and pay them off. Some debt negotiators are known to charge hefty upfront fees. Others charge fees based on the amount of debt you owe or the number of credit accounts you have, or they may charge fees based on the amount of debt a creditor agrees to wipe out. The FTC’s Telemarketing Sales Rule prohibits companies that sell debt settlement and other debt relief services over the phone from charging a fee before they settle or reduce your debt.
While avoiding bankruptcy, debt negotiation will leave many charge-offs on your credit file, which to other creditors and future potential lenders, can look just as bad as bankruptcy. Often, a debt-negotiating company will tell you to stop making payments to creditors and to send money to them instead. The money gets placed in an account until the debt negotiator decides to make an offer to a creditor. If you are paying monthly payments to the negotiator, it can take many months before enough money is collected from you to make a settlement offer to a creditor. And, after several months of not paying your creditors and harassing phone calls, your credit will more than likely be ruined.
If you are considering debt settlement, here are some additional things to consider before enrolling:
▪ Write-offs or charge-offs can stay on your credit report for seven years.
▪ Your creditors are under no obligation to work with the settlement company.
▪ Debt settlement companies typically try to negotiate smaller debts first, leaving interest and fees on larger debts to continue to mount.
▪ You could still be sued by a creditor and if they win a judgment, you risk having your wages garnished or having a lien placed on your home.
▪ Many, if not most, debt settlement clients drop out without settling their debts.
▪ Debt amounts written off may cause problems with the Internal Revenue Service, because the amount of debt that is forgiven may be viewed as income to the borrower.
The BBB and FTC recommend avoiding any debt relief organization that:
▪ Charges fees before it settles your debt or enters you into a debt management plan.
▪ Pressures you into making “voluntary contributions.” This is just another name for fees.
▪ Touts a new government program to eliminate personal credit card debt.
▪ Guarantees it can make your unsecured debt go away or settle it for pennies on the dollar.
▪ Tells you to stop communicating with your creditors, but does not explain the serious consequences of doing so.
▪ Tries to enroll you into a debt relief program without reviewing your current financial situation.
▪ Refuses to send you free information and a copy of the contract.
If you feel you need help with your finances, you may want to visit with a trustworthy certified credit counselor. Consumer credit counselors encourage consumers to make every effort to pay their debts and help them communicate with creditors to stop collection calls. With the help of a certified credit counselor, who seeks reductions in interest charges and payments as part of an overall debt management plan to pay off the debt, consumers can avoid bankruptcy and ruining their credit standing. You can find a certified credit counselor by contacting the National Foundation for Credit Counseling at nfcc.org.
As with any company, check with your Better Business Bureau at bbb.org to ensure the trustworthiness of anyone who offers a quick fix to your debt problems.
Kelvin Collins is president/CEO of the Better Business Bureau of Central Georgia and the CSRA Inc., serving 41 counties in Middle Georgia and the Central Savannah River area. This tips column is provided through the local BBB and the Council of Better Business Bureaus. Questions or complaints about a specific company or charity should be referred directly to the BBB at 478-742-7999, www.bbb.org or by emailing firstname.lastname@example.org.