Don't get burned by debt settlement offers
A debt settlement firm could leave you no better off than where you started - and possibly even worse off with your creditors. Many firms get their fees first.
Aimee and Mark SooSoo owed so much money on their credit cards that the minimum payments alone added up to $2,000 a month.
Or put another way, the Sterling Heights, Mich., couple paid about $700 more a month for ugly card debt than they paid on their mortgage.
"It's not free money," warned Aimee, 32, who married into the plastic pitfalls after Mark, 27, ran up more than $45,000 in credit card debt when he was young and carefree.
Paying the minimum offered no way out.
Anybody buried in bills has seen the ads or received letters or calls from companies promising to settle credit card debt for 50 cents on every dollar owed. The pitch is that debt settlement is a better way out than credit counseling, debt consolidation or bankruptcy.
Many consumers have found that debt settlement offers can be an easy way to lose $800 or more in fees to the debt settlement companies.
A debt settlement firm could leave you no better off than where you started - and possibly even worse off with your creditors. Many firms get their fees first.
"They've not reached out to the creditor yet, and they're lining their pockets," said Gail Cunningham, senior director of public relations for the National Foundation for Credit Counseling, an association of nonprofit community-based credit counseling agencies.
IF YOU SEE THESE SIGNS, RUN
The bad settlement outfits often insist that you act now and provide financial details before they'll even tell you the fees.
New York Attorney General Andrew M. Cuomo is investigating the debt settlement industry's fees and actual results.
Here is Cuomo's subpoena list: American Debt Foundation Inc.; American Financial Service; Consumer Debt Solutions; Credit Answers LLC; Debt Remedy Solutions LLC; Debt Settlement America; Debt Settlement USA; Debtmerica Relief; DMB Financial LLC; Freedom Debt Relief; New Era Debt Solutions; New Horizons Debt Relief Inc.; Preferred Financial Services Inc.; U.S. Financial Management Inc., which operates under My Debt Negotiation, and the Allegro Law Firm.
Some consumers have complained to the Better Business Bureau about ultimately being forced to file for bankruptcy after a scam outfit did nothing to pay down their debt. In some cases, more than half of the monthly payments went to fees.
"Some of them may be outright scams," warned Jason Moon, a spokesman for the Michigan Office of Financial and Insurance Regulation.
Before turning for outside help, experts say consumers should try to work with their credit card companies. It may be possible to reach some sort of agreement on your own.
Or consumers can contact a credit counseling service. See www.DebtAdvice.org.
If those options don't work, debt settlement programs can be a strategy for someone with more than $10,000 in credit card debt if done correctly, said Gerri Detweiler, author of "Reduce Debt, Reduce Stress." The book is $14.95, and an e-book is available at ReduceDebtReduceStress.com.
WHAT THESE OUTFITS DON'T TELL YOU
Yet this is not a surefire solution. Consumers are told to stop paying their bills in a debt settlement program and instead send money to the debt-settlement outfit to save up for a lump-sum offer.
The consumer may be told to have no contact with the creditor, Detweiler noted, but creditors are not legally obligated to stop contacting you.
Credit card debt is only negotiated as money builds up in your account and can be used to pay off debt.
A huge risk is that your lender could take legal action against you for not making payments. And scam outfits might not send any money to creditors, again, making the situation worse.
Another issue: You do have to have money to pay a lump sum to settle that debt.
The SooSoos say New Era Debt Solutions had a monthly fee - no upfront fee. The couple took less than two years to pay off $12,000 to creditors, including fees to the debt settlement company, to settle $27,000 in debt.
They still owe about $15,000 on one card that wasn't part of the settlement. They're working with that lender directly.
"We definitely have learned our lesson," Aimee said.
(c) 2009, Detroit Free Press.
Distributed by McClatchy-Tribune Information Services.