Most debt negotiation agencies are scams
Filed under: Debt
You've probably seen lots of tempting ads on TV (or heard them on radio) that promise to erase your debt for pennies on the dollar. Before getting involved with any debt negotiation agency, be sure to research the firm with your state Attorney General and your state's consumer office.One reader recently asked:
There has been an increase in advertisements for debt negotiation agencies that are different from debt consolidation. They state that they can negotiate your debts down rather than consolidate. I already checked with a reputable consolidation agency and the consolidated monthly payment is more than my combined monthly minimum payments which I cannot afford. Are these debt negotiation agencies a viable alternative or a sham?
My vote would be that a debt negotiation agency is more likely a scam, but there may be some good ones out there. The FTC has closed down many of them because instead of helping consumers pay off their bills, they've driven them to bankruptcy. Often the FTC works with the state attorney general in bringing these cases. Here's how most of the scams work:
* They ask for a list of your creditors and total amount of your debt.
* They usually asked for monthly administrative fees of $30 to $40 a month and they'll take a percentage of what they save you.
* They tell you to stop paying your creditors because then they can make a hardship case for you.
* They tell you to put the money you would normally pay your creditors into an account and as that account balance builds up and you have enough to pay off a creditor, they will negotiate settlements of pennies on the dollar.
* They usually do nothing for two or three months and by that time you'll be hounded daily by collectors.
* Often they never do anything to help pay off your debt.
Consumers who get caught up in these schemes usually end up in worse shape then before they started with the debt negotiation agency and have nothing left to do but file for bankruptcy. I'm sure you've heard the phrase, if is sounds too good to be true, it probably is. Well for most negotiation agencies the deal is too good to be true.
The best way to find help with your debt problems is to work with a non-profit credit counseling service. To be sure you are working with one that is truly non-profit use the resources of the National Foundation for Credit Counseling.
Lita Epstein has written more than 25 books including the "Complete Idiot's Guide to Improving Your Credit Score" and "The 250 Questions You Should Ask to Avoid Foreclosure."
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Reader Comments (Page 1 of 3)
12-04-2008 @ 7:32AM
Jane said...
Please be aware of Peoples First Financial, I fell for their scam to help me negiotiate my mortgage payment. The result is I lost $3K and my bank foreclosed on me. It all happened so fast. All the red flags were there and I missed them. I worked so hard for many years and my place is gone and my credit is ruined. The bank now owns my place and I have to move out. My advice is before you get involved with any of these organizations check with the Better Business Bureau and with HUD.gov before you sign anything. Research the organization before you get involved and start signing any documents.
On these sites they have lawyers that will give you advice for free. I cannot express enough to read every document carefully. I found this out just a little to late.
God Bless
Reply
12-04-2008 @ 1:22PM
Tabatha said...
Your story is heartbreaking. I am praying for you.
12-04-2008 @ 9:43AM
Fran said...
Jane - I personally always say if it's unclear how the company can make a profit from this, it's probably a scam. While I don't have creditor issues, I sympthize for those who really need help. I appreciate that you have shared vidal information! There are too many people who are desperate for help and could fall for these scams easily. Your message will make a differences to someone. Thank you for being a good person and trying to help prevent others from complete disaster.
12-04-2008 @ 9:44AM
Jon Boy said...
I found these to be helpful
What if you don’t pay your credit card bills?
http://www.curiousread.com/2008/09/what-if-you-dont-pay-your-credit-card.html
10 Things You Might Not Know About Your Credit Card
http://www.curiousread.com/2008/07/10-things-you-might-not-know-about-your.html
12-04-2008 @ 9:44AM
FB said...
What a hard lesson you have had to learn. Thank you for posting your story, you will be a solid testimony and probably save many others the same result. I pray that God will surely bless you for that.
WORRIED ABOUT TRAILER THEFT?? You need to:
http://www.carrythebigstick.com
12-04-2008 @ 9:52AM
BOB JONES said...
JANE/ DONT WORRY ABOUT CREDIT , ITS A SCAM TOO, AND THEY ARE JUST THE LEGAL SCAMMERS, COMPARE THEM, AND PS GO OUT AND FIND YOU A NEWER BETTER HOME, IF YOU CAN AFFORD A PAYMENT, FIGURE OUT WHAT IT IS AND NOW THE INTERESTING PART.
FIND YOU A HOME, BEING SOLD BY INDIVIDUALS AND CREATE YOUR OWN SELF-FINANCING SELLER, THEY ONLY NEED TO MAKE THE DECISION BASED ON YOU, IF YOU ARE SINCERE, HAVE FUNDS AS YOU CAN AFFORD, S/A RENT TO OWN AND WHEN CERTAIN LEVELS ARE MET, THEY PUT THE HOME IN YOUR NAME, OR MANY WILL JUST FINANCE IT FOR YOU , BUT MAKE THE TERMS WHERE BOTH OF YOU ARE WINNERS
NOW IT IS YOUR TURN , GO GET YOU A NEW HOME ,
12-04-2008 @ 11:29AM
sylvia said...
Jane, sorry to hear your story. Now what I do have to say, espeacially for women is don't get overwhelmed or threatened. These companies sound like they are coming to get you right away, well they are not they want their money first. You can negotiate your own settlement. Be open and honest with the creditor once they start calling. If you can send in the minimum and they won't (can't) call till you are 30 days behind and let them know that. Also if need be ask for supervisr express your desire to pay the bill and outline your circumstances and ask openly if they are willing to make a settlement and then accept payment arrangements on the settlement amount.
12-04-2008 @ 8:31AM
Allen said...
Stay away from Credit Solutions.com from Dallas! They are under a class action law suit and the whole )(&*)*&^%$# bunch of crroks should be jailed!
Reply
12-04-2008 @ 10:04AM
Janna said...
OMG, my husband and I went through credit solutions and all they did was take our money, they never went to bat for us or any hearings or anything like they promised. We couldn't even reach them half the time and when the payment period to them was finally up we heard nothing and were still in debt, also all the interest built up even more from the creditors and we started getting our wages garnished Thanks to them. HUGE SCAM! Now we are in the final steps of Bankruptcy, they really screwed us over.....
12-04-2008 @ 10:24AM
DALY said...
I was scamed by credit solutiones.And my boyfriend as well.I had to open a account Then left $301.00 for the frist 6 months.that would be there fee for helping me.I was told to give them all my bills account # and to stop all payments on my creditors.Which stupid me did .To make my story shortThey scamed me for $1,989.00.And they didnt do a thing to help me.I was the one giving them my money so they could pay there bills.last but not least i had to file for bankrupty.Please dont let this happen to you or anyone else. Spread the word even if your drowning dont let these so called solutiones pull you further down. MY GOD HELP US ALL!!!!!!
12-04-2008 @ 8:32AM
Lita Epstein said...
Jane,
Sorry you lost your home. In addition to HUD, as Jane suggests, here's some other organizations that can help as well:
http://www.walletpop.com/blog/2008/11/18/dont-use-mitigation-services-to-save-your-house/
Lita
Reply
12-04-2008 @ 8:52AM
Jerry said...
These scam companies have been coming out of the woodwork from every direction. Yea, there may be a very very few that actually achieve some relief but they do add even more money to your current debt load. Most places you owe money to will work with you on changing your payments and interest so you can do it yourself. AND IT IS EASY ! You do not have to have any experience to do it sucessfuly. Either way your credit rating will suffer some BUT it WILL suffer more of you hire others to do it for you !
Reply
12-04-2008 @ 8:56AM
davidm6685 said...
Remember - if its too good to be true, be cautious, it probably isn't true...
Reply
12-04-2008 @ 9:16AM
Lita Epstein said...
Logan,
The FTC works with state attorney generals to close them down:
http://www.ftc.gov/opa/2008/09/nss.shtm
But it takes awhile to build a legal case and consumers must tread carefully.
Lita
Reply
12-04-2008 @ 9:45AM
Brooke said...
There are SOME good companies!! The debt consolidation and the debt negotiation are not good for your credit and are most likely a scam! But i do know of one GREAT company. Its a credit restoration company. Their sole purpose is to raise your credit score. They do a wonderful job too! They raised my score from a 530 to a 680 in a year and my husbands from a 565 to a 730! That enabled us to get our dream house weve been trying to get approved for, for so long. I think everyone could use this service! here...call them if you want...215-333-5500. I know they have an 800 number too but im not sure what the number is. The company is called Pleasefixmycredit.com
Reply
12-04-2008 @ 9:53AM
D. said...
I tried to negotiate lower APRs/fees with some of my creditors only to have them *raised* to horrible heights. I swear they did it just for the fun of being nasty. Now I am in a worse pickle than before I tried negotiating on my own. I have nowhere to turn, family-wise, for help paying down these balances, so I've taken a 2nd job and am working myself sick. But at least my balances are shrinking, if slowly. My advice: Don't complain to the credit card companies, they have you right where they want you, and they can make your life more miserable than it already is; and for *heaven's sake* don't fall for these debt consolidation scams! Just bite the bullet, pay your bills, and STOP LIVING ON CREDIT CARDS!
Reply
12-04-2008 @ 9:53AM
Lita Epstein said...
Lita,
There is absolutely nothing a credit repair company can do for you legally that you couldn't do yourself. Here's how you can fix your credit score by yourself:
http://www.walletpop.com/blog/2008/11/21/steps-to-the-quickest-way-to-improve-your-credit-score/
If you use this payoff method and clean up any errors on your credit report, you don't need to pay a penny to anyone for credit repair.
Lita
Reply
12-04-2008 @ 10:28AM
Bill said...
My Pops told me this a long, long, long, long (I'm old) time ago: "Son," he said. "Don't you believe none of what you hear and only half of what you see." To this day it's still the best advice I've ever had.
Reply
12-04-2008 @ 10:34AM
Dan Parker said...
Anyone can call their credit card provider and negotiate a reduction in the total amount owed. This is providing you can remit the amount in full at the tile of settelment. Two things to know: 1) This will hit on your credit report and stay there for seven years. 2) The difference between the original and negotiated amounts will result in a W2 form being issued and reported to the IRS. [You owed $10,000, negotiated it down to $6,000 so $4,000 is reported as income.] If that would put you in a higher tax bracket you've gained nothing. You do not need a third party to get this done but, like most things in life, there are "gotchas" to consider.
Reply
12-04-2008 @ 10:40AM
Marie said...
Has anyone worked with Clear Debt Solution (www.cleardebtsolution.com)? My boyfriend entered into their "program" and I'm really worried it might be a scam. If anyone has further info on this company, I would REALLY appreciate your help. Not sure where to turn to and have no idea who can be trusted.
Reply