Report Says Debt Settlement Companies May Leave Clients Worse Off

Using a settlement company to help you dig out from underneath burdensome debt may sound appealing, but it may leave you worse off than when you started, according to new research.

A report from the Center for Responsible Lending, a nonprofit research group, finds that consumers who sign on with for-profit debt settlement companies find their debts grow about 20 percent on average before a settlement, with no guarantee that such a settlement will be reached.

“Our concern is that this is another way of taking advantage of people who are in dire straits to begin with,” said Ellen Harnick, senior policy counsel at the center and co-author of the report.

Debt settlement companies offer to substantially reduce the amount owed by negotiating with credit card companies and other creditors. But to use a settlement company’s services, a client generally must stop making payments on the debt. Instead, money is deposited in a dedicated account; the funds are used to pay creditors, and the settlement company, if and when a settlement is reached. (The fee is often a percentage of the debt, or a percentage of the amount saved by the settlement.) However, defaulting on a debt means additional interest and late fees accrue on the account. Some card companies will not deal with settlement companies, and may file a lawsuit when payments stop.

The higher balance, plus the debt settlement fees and potential taxes owed on amounts that are forgiven, can substantially whittle down any savings realized if a settlement is eventually reached, the report finds. Consumers must settle at least two-thirds of their debt to benefit from debt settlement, but many are unable to get that result, the report said. The average debt-settlement customer has six debts totaling $30,000.

Typically, consumers consider debt settlement as an alternative to filing for personal bankruptcy. But Edward C. Boltz, a bankruptcy lawyer in Durham, N.C., says he sees clients who have ended up seeking bankruptcy protection despite having gone through debt settlement. Settlement companies usually will negotiate credit card debt, but often may not include medical or tax debt in their services. So clients who have a broad mix of debt may not get the relief they need, Mr. Boltz said.

It is also difficult to determine the likelihood of success in obtaining a settlement. The new report cites research from the federal Government Accountability Office, which noted that the percentage of clients successfully completing a debt settlement program was in the “single digits.”

Federal rules that took effect in 2010 bar debt settlement companies from charging fees upfront; they may collect a fee only after a settlement is reached and a payment is made under the agreed-upon plan.

The report notes that the American Fair Credit Council, a trade group representing debt settlement companies, has said that success rates had improved since the new rules took effect. A council representative did not respond to a phone call seeking comment.

Data from Colorado, however, which regulates debt settlement companies that operate in the state, suggests any change in success rates since the upfront-fee rule took effect is “marginal,” the report said.

Here are some questions about debt settlement:

■ Will using a debt settlement company affect my credit score?

Yes, according to the Consumer Financial Protection Bureau. When you stop paying your debts and your accounts become delinquent, that information is reported to the major credit rating agencies and can harm your credit score. The delinquency may remain on your credit report for seven years.

■ Is debt settlement the same as a debt management plan offered by credit counseling companies?

Credit counseling agencies — which are often nonprofit organizations partly funded by credit card companies — obtain upfront agreements with creditors that allow a debt to be paid off over three to five years. Typically, the creditor agrees to a lower interest rate and waives penalty fees, but does not eliminate any of the principal owed. This option still requires that significant monthly payments be made, however, so not everyone may qualify. The Justice Department maintains a list of credit counseling agencies that are approved to provide pre-bankruptcy counseling on its website.

■ Are there any other options if I can’t pay my debt?

The Center for Responsible Lending suggests that you try to talk with your creditors yourself, especially if you have not become delinquent yet. Some companies have programs to reduce your principal or lower your interest rate if you can document a hardship, like losing a job.

If you cannot see any way to pay your debts, you may file for personal bankruptcy protection — a serious step that discharges your debt but impairs your credit rating and your ability to borrow for seven to 10 years, depending on the type of filing.

To view this article at The New York Times click  HERE

Things To Know About Debt Consolidation

Debt consolidation is a way to collect all your individual debts and lump them into a single loan. It works well to combine overdraft, credit card, and automobile loans. By consolidating your debt you only make one payment to one creditor. Usually, you can negotiate better terms, a lower interest rate, and quicker payoff times. But is debt consolidation always the best idea for you?

When you consolidate your debt make sure you know if it is an unsecured or a secured loan. An unsecured loan is like a signature loan or a good will loan from a friend. You are not required to put anything on the line to guarantee the loan in the event you don’t pay. Money is loaned to you solely on your ability to repay. A secured loan requires that you offer a piece of collateral as insurance, in order for the bank to lend you money. That collateral could be your house, your boat, or a sum of money in an account. If for any reason you don’t pay the loan back, or default,  the bank has every right to take whatever you may have secured the loan with.

It is also important to know whether the interest rate on your loan is fixed or variable. A fixed interest rate remains the same until the loan is paid off. The interest rate you start out with will be the interest rate you end with. If the lender’s rates go up and down, it doesn’t matter, because you will have a fixed interest rate. The other type of loan is the variable interest rate. These usually have an introductory offer. The offer can last anywhere from three months to five years. After the offer expires your rate will adjust to a new rate. These loans are popular because the introduction rate is so much lower than other rates. It’s tempting to get a variable rate, but it’s a risk because ultimately you can be negatively affected by rate changes. Consider these carefully.

When you consolidate your debt, look at the bottom line. Many people don’t realize that their debt can cost them 200% more after they’ve made payments over time. The car you bought for $15,000 could end up costing you $45,000 in the end. If possible, get an amortization table on your loan. This will tell you how much interest and how much principle you are paying with each payment. If you can make more than the minimum payment on your loan, you will get out of debt quicker and cheaper.

As with many life choices, the more you know about your financial options, the more likely you’ll be to make the right decision.

DMCC is a 501 (c)3 nonprofit organization committed to educating consumers on financial issues and providing personal assistance to consumers who have become overextended with debt.  Education is provided free of charge to consumers, as well as personal counseling to identify the best options for the repayment of their debt. To speak to a certified credit counselor, call toll-free 866-618-3328 or email

Organize Your Finances And Do Your Research

If you are considering debt consolidation or consumer credit counseling agencies for credit help, start by getting your act together. Organize your finances and do your research. You will begin to learn the skills you need to fix your money problems and avoid getting in this situation again. Your active participation is key in the success of your financial future.

Visit a credit counselor. There are credit counseling companies who help consumers by offering debt reduction plans to tackle debt. An advisor will work with you to lay out a plan to repay your loans. The counselor will negotiate with lenders on your behalf for the lower rate which, in turn, will reduce your monthly payments as well as keep your credit rating intact. Read the fine print to make sure you understand any fees involved; make sure that your credit rating is not adversely affected too.

Credit counseling is all about you and your financial situation. Make sure to ask the credit counseling organization about what type of customer service they provide. Credit counseling organizations should have someone available for you to talk to during all business hours of the day. Be sure to ask about counseling fees and the type of management and education programs they have in place.

Use cash as much as possible. Paying with cash has a more significant psychological impact than plastic. It feels like you’re spending more money so you spend less.

If you want something, save for it and then buy it. You should only finance items that are absolute necessities (home and car). Don’t finance furniture, small appliances or vacations. If you can’t afford to pay cash for it–you can’t afford it! Also, paying cash for items is a safe way to avoid any financial errors and bank fees. If you only take $50 to the store, that’s all you can spend.

When paying down debt remember: Minimum payments lead to the maximum amount of money paid over time. Paying more than the minimum applies more money to the balance, which decreases the amount of money you will end up paying overall.

If you are going to use any settlement companies be sure that they are registered members of the BBB (Better Business Bureau) and that they have little to no complaints. And if there are any complaints make sure then were resolved to the clients liking.

Chronic spending and debt can be a harmful habit, just like alcoholism or any other addiction. Consult a professional and/or Debtors Anonymous if you feel you might have a problem.

DMCC is a 501 (c)3 nonprofit organization committed to educating consumers on financial issues and providing personal assistance to consumers who have become overextended with debt.  Education is provided free of charge to consumers, as well as personal counseling to identify the best options for the repayment of their debt. To speak to a certified credit counselor, call toll-free 866-618-3328 or email

Credit Card Debt Relief Act 2010

Many Americans are struggling with out of control credit card debt. As a result, several debt relief options have been introduced to the market including debt consolidation, debt settlement, and credit counseling. The Federal Trade Commission  (FTC) recently passed provisions regulating the credit card debt relief industry, mainly targeting for-profit debt settlement companies. Many of these companies promised they could help consumers “cut credit card debt in half”. The problem was, however, that there was no guarantee for consumers, many of which had to pay large upfront fees to the debt settlement companies. Too many of these companies, instead of leaving consumers better off, push them deeper into debt, even bankruptcy.

The Credit Card Debt Relief Act 2010 prevents settlement companies from charging heavy fees even before the completion of the deal. This legislation is intended to provide significant protection for consumers who enter into a debt relief program and stop deceptive and abusive practices by debt relief providers that have targeted consumers in financial distress.

The purpose of the Act is to give consumers with over $10,000 in unsecured debt, who are facing financial hardship, a real and legitimate option for achieving debt relief. Since creditors and card issuers receive nothing in a bankruptcy filing, they are eager to work with genuine debt settlement companies to collect at least some of their money back.

Other provisions of the Act require settlement companies to specify to the defaulter exactly how long the total process will take and also the cost in such a circumstance. Moreover, the borrower can, at any point in time, choose not to continue with the program and in such a case, all his or her funds have to be refunded. The FTC debt settlement provisions also make it mandatory for the companies to inform the concerned customer about the negative effects, if any, of going for such a program.

Will these new regulations put legitimate debt management companies out of business along with the abusive, deceptive, and unfair debt companies? It’s very possible that this Act will have a detrimental effect on consumers, leaving many of them to resort to bankruptcy instead of debt management. Although the intention of the FTC is to protect consumers, it’s yet to be seen if the Credit Card Debt Relief Act will achieve the Commission’s desired result.

DMCC is a 501 (c)3 nonprofit organization committed to educating consumers on financial issues and providing personal assistance to consumers who have become overextended with debt.  Education is provided free of charge to consumers, as well as personal counseling to identify the best options for the repayment of their debt. To speak to a certified credit counselor, call toll-free 866-618-3328 or email

Advice For Dealing With Creditors

At one time or another, all of us have forgotten to pay a bill or fallen behind on payments to credit cards, mortgages, autos, medical bills, or other situations involving bills. We have all therefore been contacted by a bill collector, ether through the mail or telephone call.  Some these calls and correspondence can become a terror attack from creditors.  Some creditors call at all hours at home and work. Some even may call the neighbors, the family, and/or employers.  Some collectors can be obnoxious, condescending and downright rude.  Despite laws governing their actions, many creditors and collection companies feel that an individual will not have the time, money or emotional strength to pursue them in court.  Therefore, they get away with the outrageous and, sometimes, illegal acts.

If you have filed bankruptcy, and received an automatic stay, it is against the law for the creditor or his collection company to contact you without permission of the Bankruptcy Court. If your case is discharged, then creditors and their collection companies are permanently barred from contacting you unless they have received special permission from the Bankruptcy Court, or your debt is one that is excepted from your discharge.

If you have entered into debt consolidation or debt settlement with a non-profit debt counseling service, make sure you know your rights for protection from creditor calls from your representative.

You have other legal rights which protect you against certain collection practices.  First, you should know what to do when you start getting bills. If you feel you do not owe the debt, or the amount the bill collector is claiming is incorrect, you should write a letter to both the collection company and the original creditor stating you do not agree you owe the money, or that the amount owed is incorrect. You should also ask for a record of your payments.

If the bill collectors report the debt to a credit reporting agency, you should write to the credit reporting agency and tell them the bill is in dispute. Whenever you write to a bill collector or to the reporting agency, you should sign the letter, date it, and keep a copy for your own file. Remember, just calling the bill collector to say you do not owe the money may not leave a permanent record of the call. Like most bureaucracies, if it is not in writing, it does not exist.

You can stop annoying collection. If the collectors continue to call you, you can send them a letter requesting they cease communication with you under the terms of the Fair Credit Collection Practices Act, 15 U.S.C.S. Section 1692. When you write your letter, do not forget to date it, sign it, and keep a copy. If you really want them to pay attention, send the letter CERTIFIED.    By sending the letter CERTIFIED, you have proof that you sent the letter. If you send this letter, it will not only stop letters to you, but will also stop telephone calls to you.

Also, The Fair Credit Collection Practices Act forbids bill collectors from calling you at inconvenient times, such as before 8:00 a.m. or after 9:00 p.m..    The collectors or agents cannot communicate with third parties such as your neighbor, your friend, or your family members. They cannot contact you at work if they know (notice must be in writing) that your employer prohibits it.  They cannot threaten you with criminal prosecution or call you on the phone repeatedly with the intention of harassing you.

Document all your discussions and communications with any debt collectors. If the collection company continues to ignore your warnings and refuses to comply with the law then you could sue them.  But their behavior must be truly offensive, not just annoying.  You could bring an action in small claims court, or hire a lawyer.  But, you must have proof of their actions in order for any court to find in your favor.

DMCC is a 501 (c)3 nonprofit organization committed to educating consumers on financial issues and providing personal assistance to consumers who have become overextended with debt.  Education is provided free of charge to consumers, as well as personal counseling to identify the best options for the repayment of their debt. To speak to a certified credit counselor, call toll-free 866-618-3328 or email

Don’t Succumb To Financial Stress

Financial stress is common if you are facing economic distress as a result of a lost job, divorce, death in the family, or being over your head in debt. This can lead to feelings of insecurity, fear, anxiety, anger, and depression.

These feelings can cause you to continue to make poor money management decisions. These poor decisions can lead to even heavier debt loads, and start a vicious cycle that never seems to end.

If you reach the point where your feelings of helplessness and hopelessness become overwhelming, get the help you need. Talk to a friend, loved one, your doctor, pastor, a debt counselor , someone.

No situation is hopeless. With just a little guidance, a few well thought out goals, and emotional support from family and friends, you can take steps in the right direction. As with many obstacles you overcome in life, you will emerge with a new outlook, new skills, and best of all, a new feeling of self-esteem.

You may want to consider debt consolidation or debt settlement to pay off your credit cards. One payment, usually a lot lower than your credit card payments, can help you get back on track.

The well being of you, and your family, has to be your priority during times of financial stress. Make the decision now to learn how to cope, to make the changes you can, to stay focused and goal-oriented, and to let anxiety and financial stress go.

DMCC is a 501 (c)3 nonprofit organization committed to educating consumers on financial issues and providing personal assistance to consumers who have become overextended with debt.  Education is provided free of charge to consumers, as well as personal counseling to identify the best options for the repayment of their debt. To speak to a certified credit counselor, call toll-free 866-618-3328 or email

Goal Setting Your Way Out Of Debt

Everyone talks about the importance of setting goals, but how many people really understand the process of effective goal setting? Goal setting is the foundation for both personal and professional growth and should rank high on your priority list, especially when it comes to the area of finances. If you are in debt, ignoring it is not going to benefit you. You must first asses your situation so you can determine what your options are.

If you are barely getting by financially and have no money in savings, contacting a credit counselor, who can offer advice on how to manage outstanding debts and answer related credit questions, may help you head in the right direction. You may want to consider entering a debt management program to allow credit counselors to negotiate with your creditors for lower balance, no fees and a lower rate of interest. If you have over $10,000 in unsecured debt, you may qualify for debt settlement. Bankruptcy, although a last resort, may ultimately be your best alternative. Whatever your situation is, the first step is to determine the best path for you. Only then can you begin to set realistic goals that will give you your desired results.

Once you’ve achieved this, you are ready to set your goals. Start by prioritizing which goals you’d like to focus on immediately. Goals should be specific, measurable, action-oriented, reasonable, and timely. You should have laser focus on what you want to achieve, how you are going to achieve it, and when you expect results.

Another important aspect to successful goal planning is positive language. Too often goals sound like painful work! Instead of a “to-do” list, how about an “action list” or “an action plan”. Instead of thinking in terms of what you don’t have, celebrate what you do have. Proper language should inspire, motivate and give you solutions, not cause you stress and be something you dread.

Breaking a goal into manageable steps is another helpful tool. Often we set goals, get overwhelmed, and give up. If a goal seems too big, pump it into steps that are achievable, but still challenge you.

Plan your weekly and daily goals and rank them in order, from most critical, to least. Your goals should consistently be rotated up the priority level and to accomplish them more efficiently.

Finally, visualization is an amazing tool to have in your toolbox when it comes to goal setting. Seeing yourself debt free is a powerful motivator that will keep you energized and on track.

Whatever debt relief solution you decide to embark upon, goal setting is an important component in the success of your venture.

DMCC is a 501 (c)3 nonprofit organization committed to educating consumers on financial issues and providing personal assistance to consumers who have become overextended with debt.  Education is provided free of charge to consumers, as well as personal counseling to identify the best options for the repayment of their debt. To speak to a certified credit counselor, call toll-free 866-618-3328 or email

Finding A Credit Counselor

Reputable credit counseling organizations advise people on managing money, bills and debts, help them develop a budget, and usually offer information and workshops. They should evaluate your entire financial situation with you, and help you develop a personalized plan to get you on the right track. Debt consolidation, debt settlement and credit counseling are often better options than bankruptcy. Input from a trained professional can help guide you in the best direction for your individual situation.

Finding reputable credit counselors has become more convenient. New laws requires credit card issuers to include a toll-free number on their statements that directs cardholders to information about finding nonprofit counseling agencies.

Most credit counselors offer services through local offices, the Internet, or on the telephone. If possible, look for nonprofit credit counseling programs. Just as with any other venture, the more educated you become, the better choices you will make for yourself and  your finances.

Deal With Your Debt

If you are one of the millions of Americans out of work, and your cash flow has been impacted dramatically, there are several things you should do especially if you are carrying large credit card balances.

If you know you will be going delinquent on your payments, you should stop using your credit cards immediately, except for one that you will need in case of emergency.

It’s important to contact the remaining credit card companies to let them know your situation and that you will need some relief from your payments due to your employment situation. In the current economy, there are thousands of people defaulting on their credit cards and going bankrupt. When you show that you want to do the right thing and work with the issuer to come up with a solution to your problem, the issuer generally will do all that they can to help you.

Your creditors may suggest that you work with a local credit counseling firm. This is in their interest because those companies receive a portion of their fees on an annual basis from the issuers, along with whatever fee you would be paying them for their service. Asking them for a settlement probably won’t be helpful, they generally do not do this until you are severely delinquent and they have exhausted other resources, such as consumer credit counseling.

The important thing is to get in front of your debt problem. Don’t wait until you are overwhelmed. By that time your choices become more limited, you will most likely be recieving numerous collection calls, and maybe even threatened with lawsuits.

You are more in control than you might imagine if you start early, recognize the problem and deal with it.

Debt Relief Options When Budgeting is Not Enough

If you are struggling to pay your credit cards or other unsecured debts each month and you simply to do not have sufficient income to balance your budget, there are three primary options that may provide you the relief you need.

Debt Management Plans (DMPs)

DMPs are offered by your creditors through authorized credit counseling agencies and are designed to help you payoff your credit cards and other unsecured debt in full within 5 years. Benefits generally include reduced interest rates, one lower consolidated monthly payment, and no more collection calls or past due fees. Some creditors will also re-age your past due accounts and report them to the credit bureaus as current. Credit counseling agencies offering DMPs are highly regulated, insured and bonded. Fees typically consist of an initial setup fee not exceeding $75 and recurring monthly fees based on your amount of debt not exceeding $50.

Debt Settlement Plans (DSPs)

If you cannot afford the payment required by a DMP, another alternative to bankruptcy is a debt settlement plan. A DSP provides you relief when your creditors agree to accept payments for less than you owe in full settlement of your debts. However, your creditors will only accept settlements if they believe you are unable to repay the full balance. Under a DSP you stop making any payments to your creditors and instead, save the specified plan amount each month in a bank account until there are sufficient funds to make acceptable settlement payments. It is important to understand that DSPs are not endorsed by most creditors and during the time they are not getting paid, they will increase their efforts to collect from you. DSPs are primarily offered by attorneys and for-profit companies. Fee rates are generally not regulated, and typically consist of recurring monthly fees plus settlement fees at the time each debt is settled.


If filing for bankruptcy protection from your creditors is your best option, there are two types of filings that are available to most consumers; Chapter 7, which will discharge most of your unsecured debts in full, and Chapter 13, which will provide you a plan for the partial repayment of your debts. The Chapter under which you are qualified to file is determined by specified tests. Consumers filing bankruptcy are required to receive credit counseling from an approved provider prior to filing and complete a personal financial management course after filing. Although not required, most consumers use attorneys to file bankruptcy. Fees typically average $1,700 for singles filing Chapter 7 and $3,500 for Chapter 13, plus court costs.

Get Out of Debt

Getting out of debt is a great concern for Americans today. Those who suffer from extreme debt often feel like there is no way out of their situation, but the reality is that with careful planning even those in the direst circumstances can look forward to a debt-free tomorrow. There are many different options for people who find themselves with more debt than they can handle.

Budgeting and Self-help

In many cases, consumers can actually get out of debt on their own. It takes planning, hard work and dedication.

The first thing you need to do is design a realistic, workable spending plan. Debt Management Credit Counseling Corp. can help you design your budget with our free budget analysis. A certified financial counselor will help you analyze your income and expenditures to see where you can cut your expenses in order to get out of debt. This service is absolutely free. Please contact DMCC at 1-866-618-DEBT to speak to a member of our staff.

Debt Consolidation and Debt Management Plans

In the past couple of years, there has been a lot of talk about debt consolidation and what it can really do for indebted consumers. A debt consolidation company usually receives payments from a debtor and distributes the funds to the various creditors. This way the debtor only has to write one check a month, but still satisfies all of his creditors. DMCC offers a debt management plan (DMP) that combines debt consolidation of unsecured debt with reduced interest rates, lower monthly payments, and the elimination of fees from your creditors. Our certified financial counselors will assist you in designing a debt management plan that fits your specific situation. DMCC also offers a variety of free educational information and a financial literacy program that will help you gain the skills you need to make smart financial decisions. Please contact DMCC at 1-866-618-DEBT to find out how our program can help you get out of debt.

Debt Consolidation Loans

With a debt consolidation loan, a lender will give you a loan for an amount that will pay for all of your unsecured debt. The loan may or may not have a lower interest rate than what you were paying to all of your individual creditors. Although DMCC does not offer debt consolidation loans, we can help you find the right way to get out of debt. If our DMP is not your best option, our certified financial counselors will help you find someone who can help. Call DMCC today at 1-866-618-DEBT for more information about your options to get out of debt.

Debt Settlements

A debt settlement program involves hiring an attorney or company to negotiate with your creditors a reduction in your overall debt. Successful debt settlement programs result in you owing only a portion of your original debt. However, this settled amount usually must be paid in one lump sum payment. Debt settlements can also hurt your credit history and subsequently your credit score. Unless otherwise negotiated, settled accounts are not considered “paid in full.” The negative information will stay on your credit report for 7 years. DMCC can help you analyze your financial situation to find out if a debt settlement is right for you. We can also help you identify a reputable debt settlement attorney or company. Call us at 1-866-618-DEBT for more information.


People who face severe debt delinquency may consider bankruptcy as a viable option. All collection activity will cease from the time an attorney represents a client or when the initial bankruptcy papers have been filed. Bankruptcy is a serious decision. DMCC can help you decide if bankruptcy is the right option for you and may be able to offer you alternatives to avoid it. Call us at 1-866-618-DEBT to speak to a certified financial counselor about your situation. We strongly recommend that you also speak with a bankruptcy attorney if you are considering this option.