According to a recent survey, Americans were carrying an average of over $16,000 in credit card debt last year. This staggering figure is made worse for people who earn just enough money to squeak by, hoping they can pay at least the minimum monthly payment on their card and sometimes not even having enough for that.
If you’re not making any real headway on your credit card debt, you may be looking into alternative ways to pay it off, such as settling your debt with the credit card companies. Contact Ohio consumer lawyer Jeremiah Heck with Luftman, Heck & Associates at (888) 726-3181 for a free and confidential consultation to discuss your situation.
How Debt Settlement Works
Debt settlement programs offer to help you “settle” your debt with your credit card company, which means they will negotiate a lump sum payment that is lower than the amount you actually owe. Because most people in debt don’t actually have that lump sum lying around, the program requires that you send a monthly payment to them, which they place in a sort of escrow account until you’ve sent enough to pay off the lump sum.
Since the debt settlement program is going to send off your lump sum payment, they may suggest (or outright tell you) that you don’t need to make monthly payments on the credit card anymore. After a predetermined period of time, you’re debt-free, and it took less time and money than it would have if you had just paid the card off yourself. Sounds great, right?
Well, maybe. The FTC does not condemn these programs, but it does advise consumers to do careful research and make sure they really are spending less money by going through a debt settlement company. Some things you may want to consider are:
- The length of time you need to commit. Debt settlement programs may take as long as 3 years, which is a long time to make payments for someone who doesn’t have a lot of extra cash floating around. People who are unable to make all the payments tend to drop out of the program. When researching your program, find out how long it will take to pay off your debt and make sure you can commit to the timeline before you enroll.
- What happens when you get sued. Because some debt settlement companies will design a 3, 4 or even 5-year program, many such consumers will get sued. The longer the program, the more likely a creditor will bring a lawsuit to recover the debt. As such, it’s important to know exactly what happens in the event of a lawsuit, and if it will cost additional fees to retain an attorney.
- Whether all of your creditors agree to the terms. Creditors are under no obligation to agree to the debt settlement’s terms, so you will want to find out right away if any of your creditors aren’t on board. Otherwise, your debts to them may be left sitting there, unpaid and growing even larger with interest charges and late payment fees.
- How your credit report will be affected. If your program says you can stop sending monthly payments to your creditors, and you follow their advice, you may see your credit report take a hit. It’s possible that your balances will continue to accrue interest and the company might charge late fees during the time period that you’re building your lump sum payment. These fees reflect negatively on your credit, and may even cause your creditors to sue you for payment.
Beware of Scams
These programs are regulated by the FTC, but that does not always mean they comply with the law. Some of the programs you see advertised are simply scams that will take your money and likely leave you in the same dire financial straits as you were before you contacted them. Debt settlement companies may be trying to scam you if they:
- Collect their fees before they have settled any of your debts (this is direct violation of federal law and, unfortunately, a pretty common practice);
- Guarantee that they can erase your debt;
- Claim to be a “new federal program” that will get you out of debt;
- Tell you that you can stop paying your creditors without advising you of the potential consequences of this act; or
- Claim you can cut off all communication with your creditors.
Carefully researching debt settlement programs will help you spot questionable practices so that you’re able to choose one that will actually help you out of your situation. The FTC encourages you to look the program up on the Better Business Bureau website, the State Attorney General website, or the local consumer protection agency website to see if there have been complaints or lawsuits filed against the companies offering these programs. It may also be a good idea to read up on what the FTC says about debt settlement companies, so you know what potential red flags you should look for.
Contact an Ohio Debt Lawyer
With so many debt settlement programs out these touting their stellar records, it can be overwhelming to determine which, if any, is right for you. Before you speak to one of these programs, consider sitting down with an experienced Ohio debt attorney. Luftman, Heck & Associates can arrange a free consultation with a seasoned debt attorney, who can talk about debt settlement and how it might help or hinder your situation.