Surely you’ve seen the ads on TV and on the radio promising to “settle your debts for half the balance owed”. My favorite is “Debt free in one year on your current income.” I actually called on that one because I wanted to pay off my 30 year mortgage in five years like the guy on the radio did. But, there was a problem. Seems I didn’t make enough money to make that happen. You see, they pre-qualify you on the phone first, then try to get you to buy the DVD anyway. As it turns out I can pay my 30 year mortgage off in about 25 years. Yes, I’ve lived in the house for five years.
Missing from all of this is the logic that if I had that kind of money to be debt free in a year, I, well…wouldn’t have debt!! The old adage of if it sounds too good to be true… rings true. Unfortunately for those in serious financial straits, some will trust any snake oil salesman promising to help them. And in most cases in only adds more misery and debt to an already horrible situation.
New York attorney general, Mario Cuomo is investigating 14 debt-settlement companies, many with nationwide operations, saying they prey on consumers by charging steep up-front fees yet often fail to provide the promised debt relief. He said:
“Our mission is clear: to hold unscrupulous businesses accountable; to rein in a renegade industry; and to ensure that people are not victimized when faced with financial hardship,”
Debt-settlement companies generally tell clients to stop paying their bills on unsecured debt and start saving money for a negotiated settlement. As a result, consumers face the prospect of debt-collection phone calls and possibly even creditors’ lawsuits throughout the process, which may take years.
Meanwhile, the company negotiates with the creditors, the idea being that the lenders will be happy to get at least some portion of the delinquent debt paid. Some firms claim they can reduce consumers’ credit-card debt by as much as 75%.
Cuomo issued subpoenas to these 14 debt settlement companies and one law firm based on consumer complaints received.
Most debt-settlement firms charge the bulk of their fee up front, leaving them little incentive to work on their customers’ behalf; You pay whether you get results or not.
“Part of the problem with this industry is it’s based on advance payments,” said Gail Hillebrand, a senior attorney with Consumers Union, in San Francisco.
Her message to consumers: Read the contract. “Do you owe any money before your debt is settled? If so, stay away,” she said.
