September 19, 2017
 
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Debt Settlement Scams - Exorbitant Fees

American consumers are getting caught up in the quick fix syndrome when it comes to their growing debt. Unfortunately, high debt has opened up new avenues for scam artists to take advantage of consumer vulnerability. Debt settlement companies understand this all too well and try to sign up thousands of trusting people each year. 

The Fees
Debt settlement companies collect an average of 30% of the total debt owed in upfront fees per client. Note that the fee is based on the outstanding debt, not the amount it’s settled for. Also, these fees will come out of your monthly deposit to the reserve account.

The National Consumer Law Center conducted an investigation of the
debt settlement industry and concluded, in general, that it’s inherently harmful to consumers—few will actually benefit from it. The key reason for this is exorbitant fees.

Consider the obvious—consumers who seek debt settlement have only a small amount of money, if anything, left over each month after paying their bills. It’s imperative for most of us to get the most out of our limited funds, especially if your budget is in crisis. Unfortunately,
debt settlement companies gouge consumers with high set up fees and monthly service charges, taken from the money you deposit monthly into your reserve account, which is meant to go towards the debt settlement in a lump sum payoff. Because of the fees, the reserve account can only grow at a snail’s pace, and with multiple debts to settle, it can take years to get through the process.   Also, if you don’t have the money to pay the administrative costs when you sign, the first several months’ payments actually cover these fees instead of building your reserve account. Meanwhile, you’ll be advised, directly or indirectly, to stop monthly payments to your creditor because they’ll be more likely to settle. This, in turn, will ruin your credit even more, and possibly subject you to lawsuits.

Remember this, if consumers had the money to save in an account they really don’t need the service
debt settlement companies offer. They would just pay their creditors and save themselves from damaged credit, possible lawsuits, increased collection calls, and tax consequences. 

A better alternative 
Most consumer debtors, with credit counseling, are able to squeeze out some additional money from their budgets. You’re probably thinking that you couldn’t possibly find any “extra” money—you’re already down to the bare bones. If you’re struggling with debt, contacting an honest, reputable credit counseling organization that can offer you sound advice will make a huge difference in your financial life, without causing further damage to your credit.

 

 

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