Credit Card Debt Settlement? Don’t Get Swindled…

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. There’s a 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.

 
Comments
The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.

I am not satisfied with the points about credit card debt settlement as mentioned in the above .There was credit card debt on me to the tune of $ 2500. I know my situation that it is not possible for me to pay this huge amount. One of my friend who is working as credit card counselor with Vantage Acceptance , I moved to him for his suggestion. As per his advice, there must be discussion with my creditors either personally from myself or through them and I followed the later. They discussed the matter on my behalf with my creditors and the total amount settled was $ 500 and $ 2000 was exempted. I paid it once and got relieved myself from unnecessary worries.

My wife filled out one of these applications for debt consolidation, and we never went through with it. A year later she says she was contacted by a company that says they are going to send her to collections if she don’t pay over 300.00 for just filling out the application. They told her the company was no longer in business, and this is a different company. What should we do?

Laws on Debt Settlement

Many Americans struggle to pay their credit card bills. Some turn to businesses offering “debt relief services” – for-profit companies that say they can renegotiate what consumers owe or get their interest rates reduced.

The Federal Trade Commission (FTC), the nation’s consumer protection agency, has amended the Telemarketing Sales Rule (TSR) to add specific provisions to curb deceptive and abusive practices associated with debt relief services. One key change is that many more businesses will now be subject to the TSR. Debt relief companies that use telemarketing to contact potential customers or hire someone to call people on their behalf have always been covered by the TSR. The new Rule expands the scope to cover not only outbound calls – calls you place to potential customers – but in-bound calls as well – calls they place to you in response to advertisements and other solicitations. If your business is involved in debt relief services, here are three key principles of the new Rule:

●●It’s illegal to charge upfront fees. You can’t collect any fees from a customer before you have settled or otherwise resolved the consumer’s debts. If you renegotiate a customer’s debts one after the other, you can collect a fee for each debt you’ve renegotiated, but you can’t front-load payments. You can require customers to set aside money in a dedicated account for your fees and for payments to creditors and debt collectors, but the new Rule places restrictions on those accounts to make sure customers are protected.

●●You have to disclose certain information before signing people up for your services. Before people sign up, you must disclose fundamental aspects of your services, including how long it will take for them to get results, how much it will cost, the negative consequences that could result from using debt relief services, and key information about dedicated accounts, if you use them.

●You can’t misrepresent your services. The new Rule prohibits you from making false or unsubstantiated claims about your services

Where do I report a debt collector for an alleged violation?

Report any problems you have with a debt collector or Debt Settlement Law Firm to your state Attorney General’s office, the Federal Trade Commission, and the Consumer Financial Protection Bureau. Many states have their own debt collection laws that are different from the federal Fair Debt Collection Practices Act. Your Attorney General’s office can help you determine your rights under your state’s law.

Good luck I was scammed with Debt Consolidation

Thanks for the important info. I am in the process of making decisions about signing up with a debt reduction company, BUT you have persuaded me because I found some of the info you provided in the contracts of these companies.. I refused one company because they wanted an up front fee of over $6000.00 and 15% of the savings I would get. Another company wanted 20% of the total debt. I spoke with my banks and some of them offered reduction on the debt with 0% and no late fees but guess what? Debt reduction company said they could get me a bigger reduction! I am planning to accept the settlement with my bank since the interest and fees will be growing when I go with the debt settlement company. Thanks again for the advice. I won’t make the colossal mistake as Julie did!(sorry it happened yo you). A good thing I read the contracts !

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.

Say is there anything you can do to keep this company from taking your money?????????? and who do you contact?

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.

sounds like a scam

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!!

It’s only a matter of time before the government cracks down on these crooks and runs them out of town.

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.

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.

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.

Bruce McCarthy

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

I used one of these services and pay over $3000 and my credit score is no in ruins. I feel scammed.