Debt Settlement Companies Could Put You Deeper in Debt - WBAY

Target 2 Consumer Alert

Debt Settlement Companies Could Put You Deeper in Debt

Updated:

If bills are piling up and you're looking for help, be careful when consulting a debt settlement group.

Some people who use these third party businesses end up in even more debt. 

U.S. Postal Inspector Robert Clark describes the pitch: "Basically, this company was saying, 'OK, you have all this debt and we can settle it for approximately 45 percent of the debt.'"

"They tell the customers, 'stop making the monthly payments to the creditors, stop speaking to the creditors, as long as you can make one monthly payment to us," said Clark.

Customers of this company are asked to sign a three-year contract. If they do, the promise is that all of their debt will be paid off. Sounds like a great deal, right?

Wrong. The catch is hidden fees and charges.

"Some of the victims that we've spoken to admitted, 'I didn't even ask what the fees were' because they were so happy to stop paying all the credit cards and pay one monthly fee that was affordable," said Clark.

Relief quickly turned to anger when consumers realized the money they were paying had not been sent to creditors.

"A lot of the victims called once they realized there was no money in their escrow accounts," said Clark. "The company would then point to the stipulation in the contract that says they're allowed to collect these fees."

Postal inspectors say in one case, there were more than 1300 victims and $3 million in dispute. Customers had nowhere to turn.

"A lot of these creditors filed lawsuits against these people," said Clark. "A lot of these people had to go to court. They were sued and had judgments against them and a lot of them had to file for bankruptcy."

The Better Business Bureau urges caution with any company that makes of any of these statements:

  • "We can remove your debt."
  • "Pay us and we'll pay your bills."
  • "Use our system and you'll avoid bankruptcy."
  • "We can eliminate negative marks on your credit report."

Here are some signs of a reputable credit-counseling agency:

  • Recognized as non-profit by the IRS.
  • Counselors are required to maintain all proper licenses.
  • They provide reviews of customers' income and debts, along with a written plan for reducing and eliminating debt.
  • Disperse the proper payments to creditors at proper times, typically twice a month.
  • Provide clients with written statements at certain intervals.
  • Offer various educational programs and other ways to help consumers overcome debt.

You can find credit counselors by contacting the National Foundation for Credit Counseling (http://www.nfcc.org) or the Association of Independent Consumer Credit Counseling Agencies (http://www.aiccca.org).

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