Economic Perspectives with Hopeton Hay on KAZI 88.7 FM in Austin, TX

8 Helpful Tips for Dealing with Debt Settlement Companies and Significant Credit Card Debt

Posted by Hopeton on May 16, 2009

The following tips were  provided by the Office of the Attorney General (OAG) of New York as part of its campaign against the fraudulent activities of the debt settlement industry.  The OAG’s Bureau of Consumer Frauds and Protection launched a nationwide investigation into the debt settlement industry on May 7:

  1. Be wary of debt settlement companies which falsely promise to obtain substantial lump sum debt reduction settlements. Many advertise “reduce debt now,” and claim as much as 50% to 75% off credit card debt, but rarely obtain advertised reductions.
  2. Never agree to sign a contract with a debt settlement company that requires payment in advance prior to obtaining the promised debt reduction.
  3. Enrollment in debt settlement plans may not stop creditors from bringing collection law suits, or prevent enrolled accounts from growing larger by the addition of late fees, interest, and penalties. Also, credit reports will reflect derogatory information, including assessed late charges and non-payment of debt, and consequently credit scores will be adversely affected.
  4. Creditors are under no legal obligation to accept a settlement offer for less than the outstanding balance owed.
  5. Only a small number of consumers who enroll in debt settlement plans have the financial means to complete them. Usually, they drop out after having paid service fees to the companies with no settlements.
  6. Enrollment in a debt settlement plan premised on stopping payments to creditors will likely lead to more frequent and aggressive creditor collection efforts often resulting in judgments, wage garnishments, and freezing of bank accounts.
  7. Check with the Better Business Bureau to obtain a Reliability Report on a particular debt settlement company and its rating.
  8. A wise first step to help resolve an outstanding account is to speak directly to the credit card issuer. Alternatively, it may be helpful to speak to an attorney or an accredited credit counselor who can help develop a plan of action that best works for each consumer’s unique situation.

For more information on the New York Attorney General’s investigation into debt settlement companies click here.

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One Response to “8 Helpful Tips for Dealing with Debt Settlement Companies and Significant Credit Card Debt”

  1. Dan said

    Seven Steps to Becoming Debt Free

    1. Accounts must be at least 90 days delinquent to qualify for debt settlement with most creditors. The decision to fall back or stop making payments on your unsecured debt must not be advised by a debt management program or they will be breaking the law.

    2. A real hardship must have taken place in order for creditors or collectors to negotiate settlements on any account. This means a medical reason, job loss, etc… This is a real hardship, not an excuse to stop making payments and negotiate a easy way out of your responsibilities.

    3. Unsecured debt that is eligible for negotiation:

    • medical bills
    • credit cards
    • department store cards
    • personal loans

    4. The best time to reach a settlement with a creditor is when the account is about 150-160 days behind. At about the 180 day mark the account will Charge off, meaning it will be sold to a third party collection agency or it will be referred to a law office for legal action.

    5. Dealing with a collection agency may not be an easy process, sometimes these companies may call as many as five to six times at different times of the day. These may include calls to our work numbers, neighbors, relatives, and more. Know your rights and learn to protect yourself when it comes to debt collection by a third party.

    6. Always request all settlements in writing. This will be the only way to prove you were offered a way out of your debt. Make sure to keep copies of all checks used to make payments as well.

    7. Clean bad marks off your credit report. Either do it yourself or hire a credit repair company to do it for you. Negotiate with creditors and collectors to remove any negative marks they may have reported to the credit bureaus.

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