Debt Consolidation Promises Are Made to Be Broken
We’ve all heard the ads from companies that claim they can help you settle your outstanding debts for far less than what you really owe. But as with most things that seem too good to be true, it turns out that these claims are too.
Many consumers who find themselves trapped by debt are lured by these advertised promises to reduce your debt burden, sometimes by up to 75 percent. In return, the companies require an upfront fee. However, these fees can turn out to be rather large, depending on the size of the debt, and with payments required in advance, there’s little incentive for the companies to follow through on their promises.
Now, New York Attorney General Andrew Cuomo is calling many of these debt-settlement companies out on their empty promises and shady practices. He’s subpoenaed fee-structure records from 14 debt-settlement companies and one law firm.
“Today, millions of hardworking Americans are finding themselves imprisoned by debt. In response, a rouge industry has stepped in, offering consumers false hope, charging tremendous fees, and leaving them in a worse financial situation,” Cuomo said in a statement to the press.
But consumers need to take responsibility to protect themselves before getting involved with disreputable companies in the first place. The best way to protect yourself: Read the fine print! Know what you’re getting into before you agree to anything or pay one penny.
Attorney Gail Hillebrand told MarketWatch that consumers should steer clear of any company that requires payment upfront. She also warns consumers to avoid doing business with companies that tell customers to stop paying off their debts while the company is in the negotiation process. If you stop paying, she says, you’re only setting yourself up for harassing phone calls from collection agencies and the very real possibility of lawsuits — not to mention significant damage to your credit score.
Instead, Hillebrand says you should contact creditors directly to see if you can work out a payment plan before you’re in too deep. Credit counseling is another avenue to explore before jumping on board with one of these for-hire companies, because it has the least impact on your credit rating.
