The Center for Responsible Lending (CRL) reports using a debt settlement program can be hazardous to your financial health.
A debt settlement program is not a miracle worker when it comes to paying off your debt. In fact, these programs break your creditors golden rule. Consumers are asked to stop paying on their debt as they join the program. The reason? The debt settlement company believes it gives your creditors incentive to work with them in order to get their money back. However, this strategy can easily backfire on the consumer.
“The implications of defaulting on debt are not to be taken lightly,” said Leslie Parrish, co-author of the report and deputy research director at CRL. “When a consumer stops making payments on a debt, not only is she vulnerable to fees and an increased interest rate, the reporting of this delinquency to credit bureaus can impact her credit score for years; she also may be sued by her creditor.”
How to avoid a scam
The Credit Repair Organization Act, which is managed by The Federal Trade Commission demands that credit repair companies make clear certain aspects of their programs, including:
- Your rights in a contract that features the services they’ll execute
- A statement expressing your right to cancel within three days without paying a fee
- The time it will take the program to work
- The total amount of money it will cost you
If you come in contact with a company that does not make these points clear, don’t do business with them. There are other methods to reduce your debt and brighten your financial future.
Want to pay down your debt safely?
If a debt settlement program seems too risky, Gary Herman, President of Consolidated Credit has a few other options that might seem more agreeable to you.
- Negotiate with your creditors: Contact your creditors and let them know you are serious about paying back your debt but you’d like to create another payment plan or lower your interest rates so you can consistently pay each month.
- Unsecured debt consolidation loan: You’ll need a good score to qualify for this loan, but it’s one way to lower your interest rates and pay only one monthly payment.
- Home equity loan: This is an option, but it’s not recommended. Since it’s a secured loan, you usually have to put up your home as collateral. If you default on the loan, your creditor can take your home.
- Balance transfer: You can transfer your multiple balances to one low rate card. This way you save on interest and only have one payment per month. But again, you’ll need a good credit score. Also, you cannot continue to charge on the other zero balance credit cards or you’ll be worse off than before.
- Debt management program: You won’t need good credit to qualify for a debt management program. You simply contact a reputable credit counseling agency and speak with a certified credit counselor for details.
A credit counselor is waiting to speak with you
If you don’t feel comfortable getting out of debt on your own, feel free to contact a certified credit counselor at Consolidated Credit. They will offer you a free debt evaluation and make recommendations on the best possible ways for you to get rid of your debt.