Unsettling Truths About Debt Settlement
After unprecedented growth in the number of for-profit debt settlement companies, the Federal Trade Commission (FTC) examined the industry’s advertising practices and impact on consumers. Their findings led the government to amend the telemarketing sales rules.
Credit counselors at ClearPoint (CCCS) have long advised consumers about the dangers of debt settlement.
What is debt settlement?
Debt settlement, also referred to as “debt negotiation,” is an agreement wherein a consumer remits payment to a creditor that is less than the total amount owed. A consumer saves a lump sum to pay off the balance, which is then considered paid in full.
What are the potential problems with debt settlement?
- Creditors often won’t make concessions for clients who are current on their credit cards. And, clients with high debt don’t often have access to a lump sum of cash—usually in the thousands of dollars.
- Debt settlement companies usually ask their clients to quit paying their bills and stop communicating with their creditors while savings for a settlement payoff. Monthly payments are deposited in an account until the new balance is met—often 6-12 months. Clients then may be sued by creditors. Even when the lump sum is saved, the creditor may not agree to a settlement.
- Only unsecured debts like credit cards can be settled.
- Clients are responsible for taxes on forgiven debts.
- Many debt settlement companies charge high up-front fees before settlements are negotiated or paid. The consumer ends up fleeced when they pay, but the debt settlement company doesn’t secure negotiated payments. The FTC’s legislative reforms are meant to end this practice when companies do business by phone (consumers meeting in person are still at risk).
- Debt settlement companies are notorious for high-pressure sales tactics and misleading debt settlement claims.
- Many debt settlement companies use attorneys’ names in their ads for credibility. You think you’ll be getting skilled advice from an attorney when, in fact, the attorney manages the company from a distance. These calls are often handled by call center representatives. And, debt settlement companies are known to outsource calls to other companies you didn’t know you would be conducting business with.
Alternatives to debt settlement include budget and credit counseling, debt consolidation loans,paying off the debt on your own and filing for bankruptcy. In a free credit counseling session, a ClearPoint financial specialist will help you take stock of your current financial situation, discuss your options and create an action plan for paying down debt. Call 1.888.656.2227 (CCCS)or get started now online.