Consumer Alert: The Debt Settlement Scam
Debt relief companies are out in force these days, promising to help negotiate much lower payments for people struggling with credit card debt. But these supposed quick fixes can actually cause lasting damage to your credit. Furthermore, they don’t offer any services you can’t do yourself!
Negotiating with your credit card company, one of the main services debt relief companies purport to offer, is something that’s better off being done yourself – for free – Carmen says. If you really need help digging your way out of debt, go instead to a non-profit credit counselor. They are your only safe and legitimate option (find one at NFCC.org).
Settlement, in the finance world, means that a lender chooses to accept an amount less than what they’re owed and considering the balance paid in full. But, as John Ulzheimer explains, it is extraordinarily rare that these services that say they can get you out of debt for cents on the dollar actually deliver.
What the services do well is trash your credit reports and scores for seven years, he says. And keep in mind that creditors are never forced to accept a settlement option – they can always sue you for what they are owed, even if a settlement company tells you they have agreed to settle.
The good news? The prevalence of these scam artists is likely to change in the new year, according to Ulzheimer. He predicts that the FTC will come down hard on debt settlement operations, akin to how they targeted the credit repair industry with Operation Clean Sweep. But for now, the bottom line is simple:
Under no circumstances should you reach out to a debt relief company to help you settle your debt.