Beware of Debt Settlement Services
In the majority of cases, debt settlement does not work and can cost you thousands of dollars in fees, leaving you even further in debt.
You can get free help in NYC by calling 311 and asking for a NYC Financial Empowerment Center near you or visit nyc.gov/ProtectYourMoney
What is Debt Settlement?
Debt settlement firms claim to be able to eliminate your debts by arranging lump-sum payments for less than you owe.
Debt settlement firms may advise you to cease paying your creditors and instead deposit your money into a special “settlement” or escrow account. Meanwhile, your creditors continue to charge you late fees and interest, increasing the likelihood that your debt will double or treble. Creditors who are attempting to collect your debts may still take legal action against you.
Understand Your Debt Settlement Rights Debt settlement companies who sell their services over the phone must comply with new consumer regulations as of October 27, 2010: Keep in mind that upfront fees may be illegal.
For-profit debt settlement firms that sell their services over the phone are prohibited from charging a fee before settling or reducing a debt. (Direct telemarketing calls and calls made in response to advertisements are examples of phone sales.) Companies that charge up-front fees for debt settlement may be breaching the law.
You own the money you put into a settlement account. You own the money that a debt settlement business asks you to put into a “escrow” or “settlement” account. You have the right to cancel your account at any time, and the escrow business is required to refund all of your funds, less any fees that the settlement firm has legally earned.
Protect Your Cash
Don’t pay any fees upfront . Any company that seeks to charge fees before providing services should be avoided.
File a complaint with the Federal Trade Commission if a debt settlement company tries to charge you before reaching a settlement (FTC). Visit ftc.gov or call 877-FTC-HELP for more information (877-382-4357).
If you’re told you have to enroll in debt settlement either online or in person, be skeptical.
Debt settlement firms that employ these strategies may be attempting to circumvent the prohibition on charging fees up front.Debt settlement firms aren’t always acting in your best interests—or even being legitimate. To entice you in, they will claim to be nonprofits, use lawyers, or be linked with the government.
Understand that debt settlement solutions will increase your indebtedness at first and are unlikely to lower any of your debt in the long run.
Be wary of credit harm and the possibility of legal action. Debt settlement can harm your credit score for a long time, making it difficult to receive a loan, a credit card, or even housing or a work in the future.
Your creditors may pursue legal action against you, including court judgements, litigation, collection efforts, and bank account freezing.
Keep your paperwork safe.Save any advertisements, letters, contracts, statements, or other papers you get if you’ve contacted a debt settlement company.Also, keep track of your phone calls.