The Better Business Bureau recently released a report telling consumers to beware of some of the more fraudulent debt relief companies out there. It’s a shame that a few bad apples are ruining what is truly a useful industry for millions of Americans in debt.
First off, debt settlement is definitely something that can be done on your own with a bit of hard work (as is credit repair), perseverance and a lot of knowledge about federal and state laws. The reason that people decide to go with a debt relief company is often that they don’t have the time or they’ve just had enough of talking to harassing creditors.
Anyone that’s going through these sorts of circumstances, where every time the phone rings you shudder because you know it’s another creditor ready to threaten and harass you, knows that they have to find a way to make it stop. Debt relief can help stop the harassment, help you pay off credit card debt, and even set you on the path for better credit. This is when it’s done right though.
The Wrong Way to Handle Debt Relief
A lot of debt settlement companies have you set up an account and deposit money in that will eventually be used to pay off all of your debts. They tell you to stop paying off your creditors and instead put all of that money into your new account. They explain that all of the money that you’re putting into this account will go to settle all of your debts within six months, or a year.
What they don’t tell you is that there are no guarantees that your creditors will be willing to settle your debt. Or that your credit profile, and as a result your credit score, will be destroyed in the process.
For these so-called “experts” in the credit and debt industry to tell you to stop paying your creditors is irresponsible and borders on criminal. It is hands down some of the worst financial advice you’ll ever receive. Even one missed payment can lower your credit scores over 100 points.
Debt negotiation companies tell you to stop paying your creditors because they’ll be much more willing to negotiate a settlement if you’ve missed a few payments. It doesn’t make sense for creditors to negotiate with you if you’ve been paying on time. So you’re destroying your credit profile for the next couple of years, and you’re running the risk of being sued. And the worst part is, these are the things that your debt relief company probably isn’t telling you.
GAO Investigate Debt Settlement
Recently the US Government Accountability Office ran an undercover investigation of what they felt were “fraudulent, abusive, and deceptive practices.” Though their findings far from represent all debt settlement companies, it’s safe to say that they’re fairly commonplace with the scammers in the industry. The quotes are from actual debt settlement representatives contacted by the GAO.
Exaggerated Claims – “We help 100% of the people who enter this program eliminate their debt, uh, in less than 3 years.”
Guarantees, promises or exaggerated claims are a major problem within the industry. An ethical company is probably going to tell you things that you might not want to hear. Such as, “you’re going to have to pay your debts.” If it sounds too good to be true, well then it probably is.
Dangerous Advice – “When you are in our program you will not pay any of your creditors anymore.”
We touched on this earlier. It’s unimaginable that debt relief companies would even suggest this. You might dig your way out of debt, but your ability to borrow will be shot for at least the next 7 years. If you’re current with a creditor, your safest bet is to continue paying them. Any self-respecting debt relief company should tell you as much.
Misrepresentations – “The banks received, you know, bailout money last year – I’m sure you saw it on the news. There has to be some type of assistance for people on a consumer level also.”
Really? So the government, whose economy is already reeling, is just going to start paying off your debts? Not only is that not logical, but it’s the farthest thing from the truth. You created these debts, you should be prepared to pay them off. The government bails out major industries, as it’s done before, so that our economy doesn’t collapse. Your inability to pay off your credit card debt probably ranks a little lower on the list of our national fiscal problems.
Well, now that we have an idea of how not to handle outstanding debts, and what to look out for with scammers and frauds, tomorrow’s blog will be about Credit Card Debt Relief Done Right. Because luckily for millions of Americans, there is a right way to handle credit card debt.
