Provided by the Bucks County Department of Consumer Protection:
Q. My husband and I have accumulated much more credit card debt than we can handle. In an attempt to provide a memorable Christmas for my three children, I believe that I went past the point of no return. While I was watching television late last night, I saw a commercial for a debt settlement firm. They claimed to be able to reduce credit card debt substantially. This sounded hopeful for me personally. My husband said that he thinks it is just a scam and that the only one that comes out ahead is the debt settlement firm. Is my husband correct and, if he is, do we have any legitimate options for reducing our debt? – N.C., Bensalem
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A. Yes you do. There are many different options for people who are in debt. Creating a stringent budget can help almost immediately. Then, contacting an approved credit counseling agency is always the first step towards getting legitimate help. A trained counselor can provide a consumer with facts and with a plan of action. However, if the consumer is in a dire position and repayment is impossible, then consulting an attorney for bankruptcy information may be the only viable option.
Keep in mind that debt settlement firms charge a fee for their service. The fee is usually 20% of the credit card debt. For example, if you owe $20,000 in debt, their fee would be $4,000 and they generally collect the fee within the first half of the contract. The basic structure of one of these plans is to verbally promise everything but then put all the actual disclaimers in the contract that a consumer signs. A debt settlement program does not stop collection calls to you or legal actions taken by the creditors. Settlement firms usually instruct consumers to make monthly payments to a special bank account, until there is enough to make a lump sum offer to settle the debt. That, in fact, could take months and the whole time the company is taking out a fee. Some debt settlement companies may not even contact the creditor for months, all the while telling the consumer not to have contact with the creditor. In that situation the consumer could also have interest and penalties add up and then the creditor may in fact take legal action against you. If a consumer is considering hiring a debt settlement company we advise that they make no commitment until a copy of the contract can be read in full. Look at the fine print; determine how much the fee will be and find out when monies are expected to begin going to your creditors. Most contracts state the company cannot guarantee any results or actual reduction of the original debt. Also, debt settlement does in fact do damage to your credit score. We would suggest that consumers try to resolve their debt problems directly with the creditor or contact a credit counseling center that is “Non Profit” to see what they have to offer.
For additional consumer tips and informational brochures please visit us at http://www.buckscounty.org/government/CommunityServices/ConsumerProtection, email an investigator at consumerprotection.co.bucks.pa.us or call 1-800-942-2669 for any questions or concerns.
