The GAO report found that “some debt settlement companies engage in fraudulent, deceptive, and abusive practices that pose a risk to consumers.” Among the questionable tactics is the practice of collecting fees from customers before actually settling their debt — and in some cases not settling it at all. Out of 20 companies the agency contacted, only one said it collects fees after successfully settling debt.
The GAO report also said that many debt settlement programs claimed exceptionally high rates of success, and in some cases 100% success rates. In actuality, less than 10% of people successfully complete debt settlement programs, according to the Federal Trade Commission.
Negotiate Your Own Debt Settlement
So what should you do if you have a lot of credit card debt and want to settle? First, don’t rely on someone else to contact your creditors. You can negotiate your own credit card debt and ask for a payment plan. Most creditors would rather work directly with you than have a third-party involved.
Second, continue making payments as long as you can. It’s better to pay even a small amount on a credit card debt rather than nothing at all. Send whatever you can to keep your account out of collections.
Debt Counseling Can Help
Finally, get free or low-cost debt counseling. A debt counseling program can help analyze spending habits to see where you can make changes. Find a credit counselor who spends as much time as needed reviewing your finances and really takes time to listen to your concerns. The program should also offer additional classes and resources on managing money.
You’re in trouble with credit card debt and need help fast. Beware of any debt help service that offers fast, immediate, or overnight relief. These claims aren’t legitimate; even filing bankruptcy takes months before your debts are discharged (liquidated) by the court.
Credit Counseling and Debt Consolidation: How they Work Together
Debtors who owe more than they can afford to repay may qualify for assistance from certified credit counseling programs that work with creditors to develop a repayment program at reduced cost. Although credit counseling programs typically do not reduce the amount of debt you owe, they can negotiate waivers and moratoriums on fees, and may also be able to reduce your interest rates. Once you accept the terms of your debt repayment plan, you make scheduled payments to your credit counseling agency and they distribute payments to your creditors after deducting their fee. This type of arrangement functions as both debt consolidation and a debt management plan because it includes a thorough review of your finances and helps you develop an affordable cash-based monthly budget.
These programs can take several years to complete, and require your cooperation and dedication to getting out of debt. You are required to close your existing credit card accounts, and it’s important to understand that credit counseling programs cannot guarantee when or if you’ll be able to qualify for new credit.
Debt Relief Quicksand: Avoid Getting in Deeper
Here are some tips to avoid debt help scams.
- Don’t pay anyone up front: Non-profit credit counseling services provide free consultations, and you don’t pay until you accept and agree to the terms of a debt consolidation/repayment plan in writing. Don’t pay anyone for lists of debt help services.
- Don’t respond to unsolicited offers of help: If your home is in foreclosure or you have tax liens, judgments, or other legal actions connected with your debts, you may receive solicitations for debt help. It’s important that you initiate any contact with debt help providers; this way you can avoid Internet scams and other shady dealings that could cost you and add to your debt.
- Interview several debt counselors: Before settling on a credit counseling and debt consolidation program, take time to check out several options. Compare costs and services provided. Ask questions, take notes, and find a counselor who’s friendly and helpful. Verify each agency’s standing with professional organizations such as the National Foundation for Credit Counseling.
Select a debt help provider based on individual needs and don’t forget to rely on your instinct. If something seems amiss, go with your feelings and find another option. Getting out of debt and improving your credit takes time, but it’s worth your time and effort.