July 15, 2024

Debt Settlement Firms Often Put Consumers In Worse Position

debt-slaveIt seems so compelling – make a simple phone call and a debt settlement company will take it from there by negotiating down your debts and making you debt free in just a couple of years.  Most consumers, at their own peril, never seem able to remember the maxim that “if it sounds too good to be true, it probably is too good to be true.”

The reality of structured debt settlements, according to the Washington Post, is that it is rarely a done deal.

And so they want to believe — need to trust — the advertising from debt-settlement companies that claim a significant reduction of debt for just pennies on the dollar. An online ad for one firm promises that “if you owe $30,000, you could resolve your debt in as little as 24 to 48 months.” The statement comes with a fine-print caveat saying that, including fees, clients still end up paying as much as 75 percent of what they owe. And there is no guarantee the program will work.

There you have it. Nuking the majority of your debt away in short order is just a pipe dream for most people.

Only about one in 10 consumers participating in debt-settlement programs actually ends up debt-free in the promised period of time, according to a consumer alert issued recently by the nonprofit National Association of Consumer Bankruptcy Attorneys.

“Bombarded with slick radio and Web advertising falsely promising a smooth road to being debt-free in a short period of time, these companies prey on the most desperate victims of the economic downturn,” said Ed Boltz, a North Carolina bankruptcy lawyer and incoming president of the consumer bankruptcy association. “These particularly vulnerable consumers usually end up getting sued, stuck with outrageous fees, more deeply in debt, and far worse off in terms of their credit score.”

One of the biggest problems with debt-settlement programs is that they encourage consumers to default on their debts, Boltz said.

The Post notes that besides utterly ruining the credit of those they are trying to help, the amount of fees imposed by debt settlement companies is often outrageously high.

Although recently enacted federal regulations now prohibit debt settlement companies from imposing upfront fees, a consumer still needs to fully understand what the costs are and what the expected results will be.  If a consumer is unduly burdened by debts that cannot be repaid, bankruptcy is often a better option to eliminate the debt.  In addition, a consumer can always directly call a creditor and try to negotiate their debt balance lower without having to pay fees to an outside party.

If debt settlement still seems to make sense, despite the potential drawbacks, check things out first at the FTC web site which provides information on debt relief services.

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