With the economy in decline, hundreds of thousands of consumers are turning to debt settlement companies for help in handling large credit card debts. These companies offer consumers the promise of financial salvation promising to reduce a consumer’s debt, negotiate with creditors, and stop harassment from debt collectors in exchange for various fees. Yet consumers often wind up paying large fees, often up to 15% of their total debt, and receive little to nothing in return.
As recently reported in the New York Times, these debt settlement companies advise consumers to stop paying the minimum amount on one’s credit card and instead accumulate the money in an account the settlement company promises to use to strike a bargain with creditors. But, long before making any attempt to deal with creditors, the settlement company takes a monthly fee that can be over $100 a month. Some consumers have found that the debt settlement company does nothing more than take its large fees. Even the credit card industry has warned that debt settlement companies are “very harmful” to both consumers and creditors.
State attorneys general are being flooded with complaints about debt settlement companies. For example, the State of Texas has sued Credit Solutions of America claiming that it misrepresents its success rate, noting that the company’s own data “show that over 80 percent of the debts enrolled in the program do not settle.” The few debts that are settled, the suit alleges, are for higher amounts than the promised 40 cents on the dollar.
If you have used a debt settlement company, please contact us to discuss your legal options.