Outrageous fees are the norm with these companies
Many people who get into credit card debt will sign up with a debt settlement company for representation in negotiating a settlement of the debts. Here is how a debt settlement company works: They instruct you to stop making your credit card payments, and instead, to send all that money you would have sent to the credit card company to them.
Their promise is that the money you send them will build up in a savings account, and when it reaches a certain amount, they will use that money and their expert negotiating skills to settle your debts for pennies on the dollar.
That’s the plan anyway.
But it’s a scam. They extract such high administrative fees out of the money you send them, there is little to go into the savings account that is supposed to be building up. And after you go a few months without making any payment to the credit cards, those credit cards will sue you for non-payment. They’ll seek to garnish your wages or take the money from a bank account. Do not fall for this scam.
The following is a conversation I had just last week with a client who had signed on with one of these debt settlement companies.
“My credit card is suing me,” said Alex from Hawaii. “I tried a debt settlement company but it didn’t work.”
“How much did you end up paying them in fees?” I asked.
“Tons! You wouldn’t believe what they took!”
“And the credit card company sued you after you’d stopped making the payments, right?”
“That’s exactly what happened,” Alex said.
I hate to generalize, and there may actually be some debt settlement companies out there who do not rip off their clients.
But remember, if you want to negotiate a settlement on your credit card debts, just call up and negotiate it yourself. No company, no law firm, is going to say anything that you can’t say yourself.