None — 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.
Companies include:
• Financial Freedom of America
• Swift Rock Financial Solutions
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." (See attachment)
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.