Settle Credit Card Debt Without Getting Ripped Off

Ben was desperate. He had over $30,000 in credit card debt and the demand notices were piling up. Within a few months he was going to face foreclosure on his condominium. He had to figure out how to negotiate a credit card settlement that would keep him out of bankruptcy. 

On the radio he heard an advertisement for a debt settlement company. The ad promised that with “one phone call” Ben’s credit card debts could be consolidated into one easy monthly payment. No more harassing phone calls, no more threatening letters, no more risk of foreclosure because he couldn’t pay his mortgage. One phone call and a simple payment plan could give Ben peace of mind and financial freedom.

But Ben was wary of rip-off schemes. The ad sounded almost too good to be true. So he did the smart thing—he decided to do some research. He was shocked by what he found. 

Fees and Promises

Ben contacted a debt relief company whose ad he had heard on the radio. The company representative assured Ben that they had the power to compel banks to lower Ben's interest rate. All Ben had to do was pay the $499 fee and the company would go to work and within one month Ben would see results. He was assured that because of his lower interest rate within two months he would recoup his $499 investment, and after that he'd save enough to pay down his cards with no problem. 

Another company told Ben that it could—for a fee, of course—negotiate a one-time settlement with all of Ben's creditors, a deal which would result in a reduction in the principal owed by as much as 75 percent.  

But Ben found out that the Federal Trade Commission has sued more than dozen debt relief companies. FTC and Internal Revenue Service investigators have uncovered debt counseling services that claim to be non-profit charities when they are actually for-profit companies. The non-profit label makes potential clients feel confident about contracting with the company because the company seems vaguely like a charity. 

Some unscrupulous scam artists simply take the fee and run. Others claim that the fee was a "referral" to another company. Others point to fine print that says that results are not guaranteed.

 Finding Legitimate Debt Relief

Ben realized that he needed to avoid any debt-relief company that charged a big up-front fee. The Consumer Federation of America says that for credit counseling services consumers shouldn’t pay more than an initial fee of $50 and no more than a $25 monthly maintenance fee. Here are some basic guidelines: 

Shop around. The Federal Trade Commission website offers advice on your legal rights as a debtor. Compare several services and get to know how they operate.

If the debt-relief company is vague or reluctant to talk about fees, go someplace else. A legitimate credit counselor should spend at least twenty minutes with you in order to get a complete picture of your finances. There should be no charge for this initial consultation. 

Don’t rely on the claim of a non-profit status. If a company claims to be non-profit, go to Guidestar.org, which lists every non-profit charitable organization in the United States.

Check out the company. Your best protection against debt relief scams is to check with the Better Business Bureau. Using the search feature, you can easily locate BBB accredited businesses in your area. There are also lots of informative articles on a wide range of topics including debt consolidation. 

By shopping around and getting the facts, Ben found a reputable company to help him consolidate his debts and make payments at a lower interest rate.