Credit consumers warned about debt settlement schemes

Credit consumers, including those who have been struggling with harsh credit card and bank fees, home foreclosures, and other financial difficulties like paying back bad credit loans, are warned about debt settlement schemes, which claim to help them settle their debts but only end up giving them further and steeper financial losses.

According to a report from the National Association of Consumer Bankruptcy Attorneys (NACBA), only one in every 10 consumers is actually able to get rid of their debts through these debt settlement schemes. It says, “Already struggling with home foreclosures, harsh bank and credit card fees and other major financial challenges, America’s most deeply indebted consumers are now falling victim to a major new threat – so-called ‘debt settlement’ schemes that promise to make clients ‘debt free’ in a relatively short period of time.” In fact, the debt settlement industry itself admits, although reluctantly, that the services they offer don’t really and totally pay off the debt of most of their customers.

NACBA also adds that the “…[f]ederal and state officials put the debt-settlement success rate even lower – at about one in 10 cases – meaning that the vast majority of unwary and uninformed consumers end up with more red ink, not the promised debt-free outcome.”

Companies that offer debt settlement schemes started to emerge at the start of the economic downturn. However, after a surge of complaints from credit consumers, new rules and regulations were implemented, preventing these companies from collecting upfront fees from consumers. Instead, they will first need to deliver what they have promised – that is, to reduce, settle, or negotiate the debts that credit consumers have incurred, either through banks or other lending methods, including bad credit loans. These companies are also required to disclose crucial information to their customers, including the estimated duration of the debt settlement process, as well as the amount that they will have to pay for the service.

Self-Help Debt Settlement

Meanwhile, to avoid these debt settlement schemes, NACBA, as well as other agencies like Better Business Bureau, recommends that credit consumers engage in self-help, or directly negotiate and settle their debt with their lenders. “If you have just a single debt that you are having trouble paying (such as a single credit card debt) and you have cash on hand that can be used to settle the debt, you may also be able to negotiate favorable settlement terms with the creditor yourself,” advises NACBA.
Consumers are also advised that they seek help and advice from non-profit credit counseling agencies, which generally charge small and reasonable fees for the services that they provide. For instance, the National Foundation for Credit Counseling, the country’s largest financial counseling organization, can provide consumers a list of community-based counseling services. The service can be done in person, or through phone or online.

Importantly, the best way to avoid getting abused by these debt settlement scams is for consumers to understand what they’re getting into. If hesitant about the deal being offered, it’s probably best to steer clear of such a deal, and instead find better and easier ways to settle debts, or maybe settle their debts their own ways.