Posted on Saturday, 8th August 2009 by CreditCardGuru
Credit card debt consolidation seems to be the buzzword in financial circles these days, given the fact that the economic crisis only seems to be getting worse. You see the ads on TV, radio, and the net. We keep hearing about the virtues of debt consolidation and how these programs not only help consolidate your debt, but also offer to reduce it. Seems too good to be true? Well, as a matter of fact, it often is. Read on to find out the truth behind credit card debt consolidation and reduction.
The Offer
Here is the rosy picture that is painted in front of a vulnerable customer who is unable to make the minimum payments on his credit cards by a credit card debt consolidation program. The customer is asked to stop making any payments whatsoever and start saving the money that they would otherwise have paid to credit card companies. Once the saving becomes large enough, it can then be used to settle debts with credit card companies. Credit card companies are willing to settle for less than the total amount owed, if paid in lump sum. Presto! You are out of debt, and without having to pay the entire amount either thanks to credit card debt reduction measures.
The Truth Behind the Offer
While the program sounds great on paper, it does not actually work so well in real life. A person who is unable to make minimum payments on his credit card dues is unlikely to be able to save a large lump sum in a short amount of time. Without this lump sum amount, he is unable to settle his debt and risks getting chased by third party collection agencies. This concept of credit card debt consolidation simply does not work. On the other hand, the debt keeps getting bigger since the customer has stopped making any payments. Late fees, non-payment charges as well as interest keep accruing until a settlement is reached. So in reality, this concept of credit card debt reduction also does not work. Plus if you think your credit was bad before, it will be really shot now that you haven’t been making any payments at all.
The Scam
The main reason this credit card debt consolidation scam is working is because people are desperate to get out of the situation they find themselves in. More and more people are finding that they are unable to pay back their debts and are looking for options to resolve the situation. These credit card debt reduction companies prey on such vulnerable people and on their ignorance of how the system really works. Moreover, they make a huge profit as their services are not free. In some cases, you may actually end up paying these companies over 20% or more of your outstanding debt just to use their services.
How to Reduce Credit Card Debt?
In reality, there is only one simple way to actually implement credit card debt consolidation. Get a 0% APR credit card and consolidate as much of your debt on it as possible. Just keep making your minimum payments or more, in a timely fashion. However if you don’t have the credit score necessary to open a card, you should talk to your credit card company to see if you can work out a payment plan with reduced payments. Remember, there’s nothing a debt settlement company can do that you can’t do on your own. We wrote a recent post on here about the “talk to your credit card company” free service which was recently launched by the major banks and issuers.
Whenever you get a lump sum amount, use it to clear as much of your debt as possible. Over time, you will find yourself debt-free. But most important of all, you will also have paid off your debt with a clean credit report.
Tags: credit card debt reduction, credit card debt settlement
Posted in General | Comments (10)
August 9th, 2009 at 2:05 pm
I used one of these services and pay over $3000 and my credit score is no in ruins. I feel scammed.
August 9th, 2009 at 2:34 pm
I agree with many points you make but I’m forced to remind you just because there a few bad apple out there doesn’t mean that everyone is out to defraud you.
I’m going to tell you upfront that I work for a debt settlement company. Mine is rated A with the BBB . I can respond each and every objection brought forth on this blog if you wish to discuss this with me email me at
Your conclusion is faulty in that people in trouble with their credit rarely if ever will qualify for a 0% APR credit card.
Bruce McCarthy
August 10th, 2009 at 7:07 am
I noticed you use Debt consolidation and Debt settlement interchangeably in this article. These are two totally different debt relief options.
Debt settlement is the negotiation of debt between an unsecured creditor and a consumer experiencing a financial hardship. Unsecured debt includes credit cards, retail store charge cards, gas cards, medical bills, cell phone bills, repossessions and more. As part of the negotiation, creditors are willing to forgive a portion of your debt in exchange for expedited payment of the negotiated balance.
Debt settlement is not right for everyone, but for an appropriate financial profile, it can be the least expensive and fastest alternative to bankruptcy with the shortest long-term effect on your own credit viability.
August 11th, 2009 at 8:27 pm
These are evil evil evil companies that need to be shut down. The fact that they are milking money from the people that need it the most is a sin.
August 12th, 2009 at 10:20 am
I tend to agree with Bruce and Susie. Debt settlement is not evil just because there are a few companies out there that give it a bad name. You really just need to do your research before you pick a company.
August 12th, 2009 at 11:20 am
It’s only a matter of time before the government cracks down on these crooks and runs them out of town.
August 14th, 2009 at 11:47 am
I just canceled my debt settlement lawyers and instead got put on my–banks–plan. Call your card issuing institution and see what they can do for you . My bank did a financial analysis of my take home pay and ALL of my expenses, even things like gas and cellphone bill can be added into your expenses. They closed my credit card, and basically turned my credit card debt into a loan. My interest rate was 17% with my credit card but with this plan my interest rate is 4.5%!! My monthly payment is low and manageable. I finally feel like I’m on the right track.
What are you waiting for? Go and call your credit card company and see what they can do for you!!
August 19th, 2009 at 12:15 pm
sounds like a scam
August 21st, 2009 at 9:15 pm
I used Ontrack Financial Group llc to settle some collection debts I had. They charged me a 6% flat fee and took payments on their retainer.
March 11th, 2010 at 2:13 pm
I have paid almost $5000 in 4 months to my debt settlement company and they said that this all is going toward their fees. Fees are paid first and then they will negotiate with my creditors when I have saved enough for them to negotiate. I will still only be saving $200 a month for 10 more months as $800 of it will still be going to their fees. My creditors have contactetd me and want to negotiate with me NOW. I want to cancel with settlement company but they have my money and say that they can sue me for not completing the contract. They have done NOTHING for me.