Credit Counseling > Debt Settlement |
By Lacy Gallagher on October 27, 2011
.jpg.aspx) Credit counseling organizations tend to be a better option than debt settlement companies as a debt solution company. There are several organizations set up that at no cost will assist debtors in planning a budget, tackling debt and generally managing debtor’s finances. When choosing an organization the consumer should keep in mind that nonprofit does not equal free, so educate yourself on the various organizations before deciding on a legitimate and affordable one.
If the debtor’s problems run deep, then the credit counseling organization may recommend a debt management plan (DMP). With a DMP the debtor will make a lump deposit each month to the credit counseling organization that will use the money to pay a set amount on all of your monthly debts. The credit organization may have negotiated the interest rates or monthly payment of your debts in an effort to make them more manageable. The purpose of a DMP is to ensure the debtor makes regular timely payments.
The debt solutions industry has been expanding for several years. In an effort to protect the American consumer the Federal Trade Commission hosted a workshop on October 17, 2008 to discuss enforceable standards for the debt settlement industry to guarantee that companies provide a valuable service for debtors working to solve their financial problems. Even though there are regulations, consumers should still beware of illegitimate companies.
As the demand escalated for debt settlement companies, the number of illegitimate companies prowling on vulnerable debtors climbed as well. Several debt settlement companies do not have the necessary amount of resources to properly provide for all the client’s needs. These fraudulent companies also fail to disclose critical information regarding the legal action that can be taken against a consumer who agrees to a debt settlement plan and withholds payment from the creditor. Promises of completely unrealistic deadline for paying off debt for a ridiculously small portion of the debt owed are what draw desperate people to these scam companies. There have even been cases of companies stealing money from the debtor’s savings funds supposedly dedicated to settling the debt for a fraction of the cost.
Debt settlement companies should only be trusted if they are transparent with their fees and practices. They should be a supporter to the debtor, always with the debtor’s best interests in mind. They will take NO fees from loan consolidators, collection agencies, attorneys or any other third party vendors because this protects the debtor from third party disclosure problems. Even with a legitimate agency, debt settlement is not the ideal method for financial restructuring because it is associated with several legal and tax complications.
References:
http://www.ftc.gov/os/comments/debtsettlementworkshop/536796-00028.pdf
http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre19.shtm |
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