Debt Settlement Companies. Are They Safe?

There are a lot of ways to deal with debt but using a debt settlement company isn’t a good choice in most cases for most people. That’s because people who use debt settlement companies almost never walk away with less credit card debt.  In fact, many consumers end up with more debt and in a worse situation. The strategies these firms suggest often result in ruining your credit and getting you in deeper hot water with collection agents.  In many cases, creditors end up suing you as a result of what the debt settlement company suggests you do. Ugly.

The FTC passed new rules to try to safeguard consumers a few years ago. But don’t assume debt settlement companies are safe to use or honest as a result of that legislation. It’s illegal for them to promise to get rid of debt that they can’t actually get rid of now, but they still make those phoney promises from off-shore call centers or by sending you a text.  This way, the FTC can’t touch them.  That stinks.

How Debt Settlement Companies Rip You Off

There might be a few legitimate debt settlement companies out there but let’s focus on the scam artists.  This way you’ll know who to avoid.

These companies sometimes contact you in sneaky ways as I referenced above.  Then they ask if you have debts over $10,000 and if you’d like to reduce that debt. If you fall for it, many will try to hit you up for a huge up-front fee in order to speak with a “debt counselor”. Of course it’s illegal to do this but they do it anyway.

Another way these creeps rip people is off is by posing as attorneys (since attorneys are exempt from the new rules). In most cases, you’ll never get to speak to the attorney because the attorney who fronts the scam isn’t usually licensed in your state.

The typical “work “ these companies do is set up special accounts for you. They tell you to put your money in those accounts rather than pay your credit card bills.  The tell you that they want to frighten your creditors into thinking you won’t pay a thing and thereby soften them up for a settlement.

Well, if you don’t pay your monthly bill, the creditors may get more difficult to work with rather easier.  And while you refuse to make your payments, your credit score sinks lower and lower and the credit collectors start getting louder and louder.  They may end up settling the debt, but your credit history will read like a trashy novel by the time you are done.  You might even get sued to boot.

Why do they want you to set up these accounts?  So they can deduct their high fees of course.  They don’t care about you or your creditors.  They want to make sure they get paid first.   If there is anything left, they may try to make an offer and compromise with your credit card companies but you could have done that yourself.

As I said, even if the credit card companies agree eventually, they’ll be pretty upset with you because you didn’t make your payments. So as I mentioned at the outset of this post, these tactics only make your situation worse.  Few people really get the debt relief they want. Two States who sued such firms claimed that little more than 1 in 100 people got the services they paid for.  Ouch.

Questions You Should Ask Before Hiring A Debt Settlement Company

If you decide you still want to pursue this option, be very careful. And I suggest you ask these questions before doing business with anyone in this field:

Do I have to pay you anything before you settle my debt?

Anyone who charges you upfront – especially if it’s a hefty upfront payment – is someone to avoid.

Are you guaranteeing results?

If they say they guarantee debt settlement, walk away quickly.  Nobody can guarantee results in this field.

Can you stop debt collections calls and lawsuits?

Liars.  They may be able to delay collectors calls, but they can’t stop them completely.  And they can’t stop a lawsuit.

How should I deal with my creditors?

If they tell you to stop paying your creditors and make your payments instead to a special account, just hang up on them.  You’re talking to someone who wants to make lots of money off of you and doesn’t care how they do it.

How much is it going to cost me to use your services and when will I pay these fees?

Compare these costs to what it would cost to hire a bonafide attorney.  It may be less expensive and far more effective.  Just make sure the lawyer is for real and is experienced in this line of work.

So, is it safe to use these debt settlement companies now that the law has changed? NO.  For most people, a better alternative is to contact a non-for-profit consumer credit counseling service.

If you’ve used these companies, what were your results?