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Apr 14, 2009 6:10 pm US/Eastern
Beware Of Unscrupulous Debt Settlement Companies
PITTSBURGH (KDKA) ―
Americans have accumulated more than $900 billion in credit card debt; so, it's no surprise you've seen debt-settlement companies advertising that they'll work with your creditors to reduce the money you owe.
Consumer Reports says that in this bad economy, they expect unscrupulous debt settlement companies to flourish, and if you're not careful you could end up in worse debt than when you started.
That's what happened to single mom Marissa Ruiz, who supports her children on a social worker's salary. When she found herself struggling with more than $10,000 in credit card debt, she turned to a debt settlement company for help.
"They gave examples where if you owed a certain amount of money, they could cut it basically in half," said Ruiz.
But after 5 months and $600 paid to the settlement company, her debt hadn't been reduced at all. "My creditors were getting more and more unhappy, harassing me more, threatening to garnish my check, and the whole process was getting worse instead of better."
Consumer Reports' Bob Tiernan says some debt-settlement companies promise to help, but can land people in even bigger trouble.
"A lot of the time, the company will tell you to stop paying your bills to build up some savings. But this makes your original debt grow as you miss payments and get hit with penalty fees and finance charges." Add to that the fees you must pay to the settlement company itself. Tiernan says it's typical for these companies to charge 15% of your total debt as an upfront fee, plus 20% if they reach a settlement.
A better option, according to Tiernan, is contacting your creditors directly.
"It's possible to negotiate down the debt that you owe to a fraction of what it was before. In fact, bank officials that we talked to said they don't give any better deals to the debt companies than they do to individuals that call them up personally," said Tiernan.
Another option: Go to
DebtAdvice.org and look for a certified non-profit credit counselor through the National Foundation for Credit Counseling.
These counselors will help you either for free or for a set fee. In our area, that's Consumer Credit Counseling Service, also doing business as
Advantage Credit Counseling Services, with offices on the Southside and in Butler and Greensburg.
Ruiz worked with a non-profit counselor and reduced her debt by nearly $10,000 in the course of a year.
Click on the following links for more help:
National Foundation for Credit Counseling
Advantage Credit Counseling Services
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