Credit Cards » Credit Card News » Debt Settlement Programs are Hurting Rather than Helping
Date May 31, 2009

Debt Settlement Programs are Hurting Rather than Helping

The credit card problem has reached an all time high and many cardholders are currently delinquent in their bill payments.

Debt Settlement Programs are Hurting Rather than HelpingThe figures get much worse when considering the current unemployment rate in the U.S, which is, according to Fitch Ratings, at 8.9%. It is the highest unemployment rate of the country since 1983. With little in the way of available cash, consumers are turning to credit cards. Unfortunately, many are not keeping up with their bills and the credit card crisis just gets worse and worse.

Most consumers mired in credit card debt would like to get out of it as quickly as possible. Inevitably, some are caught in the latest of scams to hit consumers, the debt settlement companies.

Debt settlement companies are not scams per se. However, a large number of companies are taking advantage of the desperation among credit cardholders so that those legit companies end up getting bad press as well. These unscrupulous debt settlement companies often charge high amounts, take advantage of people’s ignorance of credit card practices, and ultimately end up increasing the debtors’ debts rather than lowering them. The debtor’s credit score is also inevitably affected negatively by the debt settlement company’s actions.

The unscrupulous actions of debt settlement companies are not going unnoticed. There have been some media coverage about debt settlement companies that scammed their customers and Andre Cuomo, Attorney General of New York, launched a national investigation on debt settlement companies. He has also had two credit card companies sued for false advertising and fraud. Lisa Madigan, Attorney General of Illinois, has also had some debt settlement companies sued, alleging that the companies “do little or nothing to improve consumers’ financial standings” and “engage in deceptive marketing practices”. In Texas, Greg Abbott, Attorney General, filed a lawsuit in March against a debt settlement company, alleging that the company was involved in “deceptive and misleading acts”.

Legislative director of Association of Settlement Companies, Wesley Young says that estimates place the number of debt settlement company customers at around 500,000 spread across around 1,000 companies. This makes for a huge market for debt settlement companies and Young’s group is trying its best to maintain the credibility of the debt settlement industry. Their association requires total disclosure of credit score risks and payment plans from members upfront.

Lobbyists for the debt settlement industry are also pushing for legislation for the regulation of the industry. However, it will be some time before these actually have some effect. Meanwhile, credit cardholders are learning about the high risk of debt settlement companies and are avoiding them. Some have even gone as far as avoiding credit card use altogether.

Date May 19, 2009

Finding Relief to Credit Card Debt

Credit card debt is a widespread problem nowadays. With the economy the way it is, the situation is bound to get worse. As a result of the credit card crisis, cardholders are turning every which way to find a way to settle their debts.

Getting out of debt is not impossible and there are many ways to do it. However, not all lead to debt resolution. Case in point – the recent controversies regarding debt settlement companies. Many cardholders have fallen victim to these companies that are big on promises and nothing else. The problem is serious enough that attorney general of New York State, Andrew M. Cuomo, announced recently that it will investigate over a dozen companies offering debt settlement.

Still, the problem remains – where can cardholders turn to for credit card debt respite?

Finding Relief to Credit Card DebtSelf Help

A very simple yet often overlooked solution to debt settlement is by simply calling your creditor to check if they have programs for customers who are having trouble paying their bills. Experts, however, warn that such a move can negatively affect your credit score. This particular solution is also more suitable for those who have debts in a small number of credit lines.

Financial Counseling

One of the problems with having credit card debt is having to understand the intricacies of the credit card agreement between the cardholder and the creditor. The problem also multiplies as more and more credit cards are involved. Credit counseling can greatly simplify the problem for the customer.

Financial counseling or credit counseling helps the customer visualize their entire financial situation. With a clear financial picture, the counselor and the customer can find a viable plan for dealing with the debt. The ultimate aim of financial counseling would be a workable debt management plan.

For those looking for credit counselors, the reliable ones are usually members of legitimate organizations, such as the Association of Independent Consumer Credit Counseling Agencies and the National Foundation for Credit Counseling. Counseling fees are very reasonable and even people who cannot afford the fee are still entertained.

Debt Settlement

Debt settlement companies should be the last choice that anyone with debt problems should consider. Debt settlement companies are very expensive and will require a large payment at the very start. Some companies may do away with large upfront payments, but they usually get their high fees from their customers in some other way.

Experts have agreed that the business model that debt settlement companies follow is very bad for the customer in the long run. Debt settlement plans may actually increase what the customer has to offer and hurt the customer’s credit score. Some credit companies also do not deal with debt settlement outfits.