Debt relief agencies promise a fix to your financial problems – give them money and they will settle your debt. Sounds promising, right? The problems arise in how the debt relief agency plans on settling your debts. Here is how many companies operate:
- They tell you to stop paying your credit card bills. If you stop paying, you will begin to accrue late fees and interest. You will also likely get lots of phone calls from the credit card companies asking for their payments.
- The debt relief agency collects monies from you on a monthly basis. They do this in order to create a pot of money from which to settle your debts.
- Then, they begin the process of settling your credit card debt, one-by-one. However, what they do not tell you is that they do not contact the other credit card companies until they are ready to deal with that credit card.
- You also have no control over which credit card they choose to settle first. Often times, the debt relief agency will choose to settle with a smaller balance card. A better method of paying down debt, however, is to start with the credit card that has the highest interest rate.
- Not all debt relief agencies are open and upfront about their costs, their fees, or their process. What they usually do not tell you is that your first 3 to 6 months of monthly payments is going to the debt relief agency for their fees and costs. This means that by the time they even start to think about settling your first credit card, you are already 6 months behind on your bills.
- There is no guarantee that debt settlement will work. There is no requirement that a credit card or collection company work with you or take less than 100% of the balance that you owe them.
- There is no way for the debt relief agency to stop any lawsuit that is in process or that will begin once you start working with them. Debt settlement is a process that takes place outside and apart from any lawsuit. This means that while the left hand may be discussing settlement, the right hand can still move the lawsuit forward and get a judgment against you. Judgments then can be garnished against your wages, bonuses, and tax refunds.
- Even if successful, using debt settlement companies can affect your credit score. Your credit score will be damaged by your failure to pay your credit card bills while the settlement process is taking place. Any debt not paid for more than 120 days receives a severe negative rating. Since you usually pay for debt settlement agency fees for 120 days, your credit score will receive a severe negative rating for each and every credit card you stopped paying on. Your credit score will also be damaged by your failure to pay the full balance on the account. Any payment less than the full value of the account can be (and usually is) reported to the credit bureaus and affects your credit score.
Here is a way to figure out if the debt relief agency you are considering is trustworthy or a scam.
Do your homework.
- Get a referral. Ask friends or family members who had financial trouble if they used a credit counseling agency. If they have, ask them how much the agency charged them. Ask them if they were satisfied with the services. Ask them if the agency accomplished their goals.
- Contact the Florida Attorney General’s Office. The Florida Attorney General’s Office provides information about how to protect yourself with Debt Repayment Agencies. Find more information here: http://myfloridalegal.com/pages.nsf/Main/911498B8090064F185257F77004BE16E
- Check with the Better Business Bureau. You can find out the rating of a Debt Relief Agency and their reputation at bbb.org.
Understand what debt relief agencies cannot do.
- They cannot help with lawsuits. In some cases, individuals with financial problems have lawsuits such as foreclosures or lawsuits from their credit card or collection companies. Agencies cannot participate in your lawsuit or represent you in the lawsuit in any way. They cannot speak to the judge or write a letter to the court on your behalf.
- They cannot provide you with legal advice. Even though debt relief agencies may have seen this type of case before, they are not allowed to provide you with legal advice. Unfortunately, some agencies do. And sometimes, that advice is not correct. Many times, this will leave you with a larger problem than you originally had.
- They cannot guarantee anything. Any agency that promises a payment of “pennies on the dollar” or a “new government program” or that they can “make your debt go away” is just too good to be true. If a debt relief agency is selling you false hope and promises, you are not going to be happy with the outcome.
Final steps
- Get everything in writing. If you take only one piece of advice from an attorney – get it in writing. If an agency promises you something that sounds too good to be true, ask for it in writing. Many agencies will not provide that information unless they can actually provide what they claim. Chances are, you will find the agency unwilling or “unable” to provide the writing you seek. Take this as a warning sign.
- Do not pay upfront fees. Legitimate, non-profit debt settlement agencies do not ask for fees upfront. They may ask for small, nominal fees to get started, but a payment of more than $300.00 should also be a warning sign.
- Try to handle this yourself. Many debt relief agencies do the same thing you could do for yourself. Call your creditors and see if they can lower your interest rate. Ask them for a modified payment plan. Ask if they will take a lump sum payment in order to approve a modified payment plan. Remember – only agree to what you can actually do. Failed payment plans will rarely get a second chance.
To meet with Attorney Kristina Feher to discuss your financial situation, contact our office at 727-359-0367 or fill out our contact form here.