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Don’t Fall for the Siren-Song Pitches of Credit Card DebtSettlement Firms

These firms promise to take care of your debt problems for you.They communicate with your creditors so you do not have to. Theproblem is using them puts you out of the loop with your creditors.You do not know what is being communicated about your finances.You do not know how your creditors are responding. Treadcarefully with these firms, or even better, avoid them.The online debt forums offer many stories of debtors beingvictimized by these debt service organizations. Quoted onnewyorktimes.com, Deanne Loonin, a senior lawyer with theNational Consumer Law Center in Boston, has investigated [thesedebt service firms]. “It’s possible there are honest ones,” she said,“but I assume they aren’t until proven otherwise.”Debt negotiation and debt settlement are essentially the same thing.You sign an agreement with an organization providing debtsettlement/negotiation services. You do not make your monthlycredit card payments. Those monthly payments go to thesettlement firm. Your money is NOT disbursed to your credit cardaccounts. Instead, your money accumulates to enable a negotiationor settlement for 50-70 percent of the debt (more or less dependingon the claims of individual settlement firms) once there are“sufficient” funds to begin negotiating less-than-full-value, lump-sum, paid-in-full payments. The debt settlement firm’s fees comeout of your accumulated funds before any creditors are paid. \ The simple fact is the math just does not work when you have topay for debt settlement. So you stop making monthly payments tobank funds to enable you to negotiate a reduced balance byoffering a lump sum payment. As a debt settlement strategy thatmakes sense. However, if you are paying for debt settlement, thatmakes no sense because the debt settlement firm’s fee, which is

typically in the thousands of dollars, comes out of your settlementfund.To look at it another way, the best time to negotiate a reducedbalance lump sum payment is about six months after you stopmaking payments. That is when the credit card bank is about tocharge off your account and sell it for pennies on the dollar. If youaccount balance is $12,000, and you have saved $6000, you mightbe able to get the bank to take the $6K as payment in full. But, if you are with a debt settlement firm, $1500 - $2500 needs to firstcome out of your settlement fund for settlement “fees.” Is the bank then going to settle for $3000?Here are five reasons to avoid debt-settlement firms fromSmartMoney.com -http://www.smartmoney.com/spending/rip-offs/reasons-hiring-a-debt-settlement-firm-is-not-always-worth-it/ .These firms dominate radio advertising and bombard email withtempting phrases like; “This is an urgent message for people withextremely large credit card debt. You must act quickly. This lifechanging information is available for free today.”Or there is something like this; “Call and learn a secret the creditcard companies do not want you to know – How to settle your debtfor less than you owe.”If you call, the first question you are asked is how large is yourcredit-card debt. If you debt is large, then they can charge a largefee. When you call, you talk to sales people who emphasize theirexperience and connections with the credit card companies andwho may promise whatever percentage of settlement they have toget your upfront fee.When debt settlement firms get you on the phone they tell you:• “We have contacts at the credit card banks, we do business withthem all the time.” Unless they are being bribed, no credit card