With burst of the housing bubble and subsequent worldwide recession, Americans are facing more credit card debt than ever before. Despite many consumers' best efforts, eliminating thousands of dollars in unsecured credit card debt is extremely difficult to accomplish alone, more often than not requiring extreme financial discipline and an impressive savings account. This situation has opened the door for bogus debt settlement companies who prey on these misguided consumers.
Debt Settlement companies burst onto the scene in 2003, offering an alternative to traditional debt consolidation firms. These companies offered the ability to bargain with banks and collection agencies to forgive large amounts of what was owed, enabling the consumer to make a down payment, and then pay monthly until the debt was paid off. This was different than the traditional programs which often wrought lower interest rates and fee's, but did nothing to reduce the total amount due.
This atmosphere presents a fertile breeding ground for predatory companies.
Consider the case of a 65-year old woman in Maryland who asked not to be identified. She signed up with a company who promised to help relieve her of the $10,000 in credit card debt she had accumulated. She gave the firm full access to her savings account (A red flag in all cases) and deposited $400 per month into an account toward her settlement.
However, when debt collectors continued to harass her, she realized the firm had never contacted her creditors in the first place.
Five years of battling with the company, while continually depositing money into her savings account, caused her to wonder if she would ever get her debt under control. She realized she had been swindled when the Attorney General's office called to inform her of the imprisonment of the firm's leaders. Unfortunately, she never got her money back and has recently filed for bankruptcy.
Luckily, this situation is still the exception to the rule, as many of these debt settlement companies offer legitimate financial services and the opportunity to become debt-free. Still, due to a lack of governmental regulation, the predatory firms still lurk, waiting for the perfectly desperate person to come along.
Protect yourself. Do your research on the firm with whom you are planning to do business. Ask friends and family, visit their website, and most importantly, check with the Better Business Bureau. Debt settlement companies can be a wonderful tool in the fight against credit card debt, just make sure you choose the right one.