The Truth About Debt Settlement Companies


People are desperate to pay their bills. Every day we see people who have paid lots of money to debt settlement companies that promised to get their debt reduced, paid off at a lower interest rate, or settled for pennies on the dollar — and that money has been COMPLETELY WASTED.

What is a Debt Settlement Company?

A debt settlement company claims that they can negotiate with your creditors on your behalf to settle all of your debts for a fraction of what you really owe. The company will usually ask you to make monthly payments to a special bank account until there is enough to make a lump-sum offer to a creditor. But while you are putting money into your account, the debt settlement companies are taking their fees out of it!

 The Federal Trade Commission is an organization that works to protect consumers. Here is what they say about debt settlement companies:

“There is no guarantee that the services debt settlement companies offer are legitimate… (They) may misrepresent the terms of a debt consolidation loan, failing to explain certain costs or mention that you’re signing over your home as collateral.”

Compare these debt settlement business promises to the truth from the Federal Trade Commission:

  • Debt Settlement Lie: You can stop paying your credit bills.
  • Truth: If you stop making payments on a credit card, late fees and interest usually are added to the debt each month. If you exceed your credit limit, additional fees and charges also can be added. This can cause your original debt to double or triple. All these fees will put you further in the hole.
  • In Plain English: If you stop making payments, interest and fees can still be added on, AND, until the debt is paid or settled, you can still be sued!

 

  • Debt Settlement Lie: All of your debt will disappear.
  • Truth: There is no guarantee that a creditor will accept partial payment of a legitimate debt.
  • In Plain English: Creditors do NOT have to agree to settle the debt.

 

  •  Debt Settlement Lie: When you settle a debt there are no negative consequences.
  • Truth: The Internal Revenue Service may consider any amount of forgiven debt to be taxable income, and the creditor can still report to the credit bureau that the debt was settled for less than the amount owed.
  • In plain English: If you settle a $10,000 debt for $5,000, you may owe income tax for $5,000 that you never even had in your pocket for one minute!

 

  • Debt Settlement Lie: You debt can be settled for pennies on the dollar.
  • Truth: Late fees and interest usually are added to the debt each month. This can cause your original debt to double or triple. All these fees will put you further in the hole.
  • In Plain English: Debt Settlement interest and fees are so high, you can end up owing MORE!

 

  • Debt Settlement Lie: No fees until you succeed.
  • Truth: Consider other people’s experiences. One way to do that is to enter the company name with the word “complaints” into a search engine. Read what others have said. You are making a big decision that involves spending a lot of your money that could go toward paying down your debt.
  • In Plain English: More than 60% of people drop out of Debt Settlement programs because they go further in debt! Read their reviews.

 

  • Debt Settlement Lie: We can remove negative information from your credit report.
  • Truth: Creditors have a legal obligation to provide accurate information to the credit reporting agencies, including your failure to make monthly payments.
  • In Plain English: No one can remove negative information that is accurate.

 

  • Debt Settlement Lie: Bankruptcy is a permanent mark on your credit report.
  • Truth: Bankruptcy is a legal procedure that offers a fresh start for people who have gotten into financial difficulty and can’t satisfy their debts.
  • In Plain English: Bankruptcy stays on your credit report for 10 years, but as you rebuild your credit it will become less and less important.

 

The Better Business Bureau has designated debt settlement as an “inherentlyproblematic business.” Similarly, the New York City Department of Consumer Affairs called debt settlement “the single greatest consumer fraud of the year.” Look into all of your options and don’t fall into the debt settlement trap!

source: Federal Trade Commission Facts for Consumers: Knee Deep in Debt link

Leave a Comment