Kelvin Collins: Debt Settlement Has Risks – News – The Augusta Chronicle
Many consumers are aware of the stress that comes with increasing credit card debt. The Better Business Bureau warns overworked consumers to beware of companies that promise to cut their bills in half by negotiating low payouts from creditors.
Debt brokers or debt settlement companies advertise their services to reduce and pay off a consumer’s debt. Some debt negotiators are known to have high up-front fees. Others charge fees based on the amount of debt you owe or the number of credit accounts you have, or they charge fees based on the amount of debt that a creditor has agreed to pay off.
The Federal Trade Commission’s Telemarketing Sales Rule prohibits companies that sell debt settlement and other debt relief services over the phone from collecting a fee before they settle or reduce your debt.
While avoiding bankruptcy, debt negotiation leaves many charges on your credit record that can look just as bad as bankruptcy to other creditors and future prospective lenders. Often times, a debt negotiating company will tell you to stop paying creditors and send money to them instead. The money is deposited into an account until the debt negotiator decides to make an offer to a creditor.
If you make monthly payments to the negotiator, it can take many months before enough money is collected from you to make an offer of settlement to a creditor. And after several months of not paying your creditors and harassing phone calls, your credit will most likely be ruined.
If you are considering paying off a debt, there are a few additional things to keep in mind before signing up:
• Depreciation or write-offs can remain on your credit report for seven years.
• Your creditors are not required to cooperate with the liquidation company.
• Debt settlement companies usually try to negotiate smaller debts first, so the interest and fees on larger debts continue to rise.
• You could still be sued by a creditor and if they win a verdict, you run the risk of your wages being seized or a lien on your home.
• Many, if not most, debt settlement customers drop out without paying their debts.
• Debt written off can cause problems with the Internal Revenue Service as the amount of debt canceled can be considered income for the borrower.
The BBB and FTC recommend avoiding any debt relief organization that:
• Collects fees before your debts are paid off or you are enrolled on a debt management plan.
• Forces you to make “voluntary contributions”. This is just another name for fees.
• Promotes a “new government program” to eradicate personal credit card debt.
• Guarantees that your unsecured debts will go away or be paid off for pennies on the dollar.
• Asks you to stop communicating with your creditors, but does not explain the serious consequences.
• Trying to get you on a debt relief program without reviewing your current financial situation.
• refuses to send you free information and a copy of the contract.
Whenever you feel you need help with your finances, it is best to turn to a trusted certified credit advisor. Consumer credit advisors encourage consumers to make every effort to pay off their debts and help them communicate with creditors to stop collection calls.
With the help of a certified credit counselor who seeks rate cuts and payments as part of a comprehensive debt management plan to pay off debts, consumers can avoid bankruptcy and ruin their creditworthiness. You can find a certified credit counselor by contacting the National Foundation for Credit Counseling at nfcc.org.
As with any business, check with your Better Business Bureau on bbb.org to ensure the trustworthiness of anyone offering a quick solution to your debt problems.
Kelvin Collins is President and CEO of the Better Business Bureau, which serves the Fall Line Corridor and serves 77 counties and the Augusta-Aiken metro area. Questions or complaints about a particular company or charity should be directed to (800) 763-4222 or [email protected]