Why You Should Steer Clear of Debt Settlement Companies
It could end up costing you more in the long run
Tuesday, August 28, 2012
You open your credit card bill and stare at the balance. How could it have gotten so large?
And maybe that's not your only credit card balance. Combined, the monthly payments are almost more than you can manage each month. Then along comes a company that says it can help you settle your credit card debt for pennies on the dollar.
Though it sounds tempting, keep in mind that it's a sales pitch. It rarely works out the way they present it.
Joe, of Bradford, Pa., says he received a pitch from a debt settlement firm and, even though all his accounts were current and we was slowly paying down the balances, he signed up. Maybe he wouldn't have to pay his debts after all.
Too good to be true?
“They asked me if I'd like to get out of debt and not have to pay all the interest so I started putting money into the account to settle my debts,” Joe wrote to ConsumerAffairs. “They guaranteed settling at 50 cents on the dollar and hoped to do it at 30 cents.”
Joe says the first card was settled at around 39 cents on the dollar he was very happy. But the happiness was short-lived.
“Next I received a letter saying i was being sued because I hadn't made any payments.”
Joe said the debt settlement company told him to withhold payment so he did. In response to the suit, he said he settled at 80 cents on the dollar plus had to pay court costs, plus pay a percentage to the debt settlement company.
“So it cost me more to settle the account than it would have to pay it off in the first place,” Joe wrote. “It was my own fault for signing up but when they contacted me it seemed like it was a good way to help get out of debt. Now that they are paid off they no longer return any calls.”
Debt settlement companies now have to operate under new rules and government consumer agencies generally keep close tabs on them. In February 2010 the state of Illinois filed individual lawsuits against four debt settlement companies, claiming they engaged in deceptive marketing practices, charged excessive fees and did little or nothing to improve consumers' financial standing.
"These companies are unfairly luring financially strapped consumers with misleading claims that they can effectively eliminate consumers' debt," Illinois Attorney General Lisa Madigan said at the time. "The reality is that, after enrolling in a debt settlement program, consumers too often find themselves in even worse financial straits.”
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