Media contact: Janet C. Hart, APR, CFEE (704) 927-8617 office
CHARLOTTE, N.C.
– Are you burdened by high credit card debt? Have you heard that it may be
possible to settle your debt for a fraction of what you owe? The Better
Business Bureau is warning financially troubled consumers to beware of debt
settlement companies that claim they can easily reduce or eliminate your debt.
Nationwide,
more than 3,500 consumers have filed complaints against debt settlement
companies alleging that they paid hundreds of dollars in upfront fees without
having their debts reduced or settled.
“The debt
settlement industry is flourishing because consumers are led to believe that debt
settlement is an easy fix that can make their credit card debt disappear,” said
BBB President Tom Bartholomy. “The truth is that it’s not that simple. Debt
settlement can have serious long-term effects on your credit.”
Consumers from
all 50 states have filed complaints with the BBB about debt settlement
companies including Debt
Settlement America, Debt
Rx USA, Financial
Freedom of America, Clear
Your Debt, Swift
Rock Financial Solutions and Credit
Solutions which has received more than 1,600 complaints alone in the last
36 months.
Practices by
debt settlement companies are also coming under fire on Capitol Hill. Senator
Charles Schumer (D-NY) introduced the The
Debt Settlement Consumer Protection Act which seeks to “protect consumers
from deceptive, abusive and financially injurious practices rampant in the debt
settlement industry.”
With debt
settlement, the consumer pays an upfront fee to the debt settlement firm for that
company to negotiate a settlement with the consumer’s creditors for less than the
amount owed. The debt settlement business works with the consumer to establish
a plan for the consumer to put money into an account administered by the debt
settlement company, and that money is used to pay any negotiated settlements.
It will usually take at least six months to a year before there is enough money
to start settling accounts. During that time the consumer will not be making
payments to creditors, which puts them at risk of having creditors file legal
actions and their credit rating will be seriously impacted.
Complainants
allege that instead of having their debt settled as promised, they were driven
deeper into debt and sometimes sued by their creditors —which led to mounting
legal fees and wage garnishments. Some complainants decided to discontinue the
debt settlement process, but were not able to get a refund from the payments
made to settle their debts.
If you are
considering debt settlement, the BBB warns you to look for these red flags:
- Upfront
fees – Beware of
companies that require large upfront fees before any debts are settled. Charging
an advance fees for debt adjusting services is illegal in many states
including N.C., but it is not illegal in S.C.
- Big
promises– Debt
settlement companies promise results that they may not be able to deliver.
- Quick
fix - Reducing debt
through debt settlement takes time—often years.
- Easy
alternative — Debt
settlement can have a significant negative impact on your credit score. It
can also expose you to lawsuits and garnishments from your creditors.
Before you
contract with a debt settlement company, the BBB has this advice:
- Contact your lender
first. – Try to
work out an agreement directly with your lenders before enlisting outside
help.
- Seek
help from a non-profit credit counseling center – Credit counseling centers can
provide guidance for little or even no cost.
- Consider debt settlement only as a
last resort before filing for bankruptcy. The debt settlement process can take
years. In the meantime, your creditors can decide to take you to court and
garnish your wages.
- Research
debt settlement companies with the BBB. Find out how many complaints the company has received,
how the firm responded to complaints and whether or not there are any
recent government actions or lawsuits against the company.
More advice on
managing credit and paying down high balances is available through BBB’s
Managing Credit – Made Simpler at www.bbb.org/credit-management/.
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