Settling credit card debts – Part 1

Do your research before paying a debt-settlement company for their services.

If you’ve maxed out your credit cards, how are you ever going to pay off your debt? You hear an advertisement from a company that promises to reduce – or even erase – your debt. Sounds like a good deal, right? The Federal Trade Commission (FTC), the nation’s consumer protection agency, says slow down and consider how you can get out of the red without spending a whole lot of green.

Debt-settlement companies
There are many different kinds of services claiming to help people with debt problems. Some of them are “debt-settlement” companies that say they’ll negotiate with your creditors to reduce the amount you owe. Some debt settlement companies claim that they can arrange for your debt to be paid off for less than the amount you owe – for anywhere from 30 to 70 percent of the balance. For example, if you owe $10,000 on a credit card, a debt settlement company may claim it can arrange for you to pay off the debt for less, say $4,000.

There is no guarantee that a debt settlement company can persuade a credit card company to accept partial payment of a legitimate debt. Even if they can, you must put aside money for your creditors each month. Meanwhile, it may be months – or even years – before the debt-settlement company negotiates with your credit card company to settle your debts. And if you stop making your payments in the meantime, the credit card company usually adds late fees and interest to the debt each month. That can cause your original debt to double or triple.

Researching companies
If you decide to pay a company to negotiate your debt, research before you choose one. Ask friends, neighbors, co-workers or family members if they have had experiences with debt settlement companies. You can enter the company name with the word “complaints” into an Internet search engine. Read what others have said. You are making a big decision to spend money that could go toward paying down your debt.

To file a complaint or get free information on consumer issues, visit the Federal Trade Commission website or call toll-free,  1-877-FTC-HELP (1-877-382-4357); TTY:  1-866-653-4261. Watch a video, “How to File a Complaint” to learn more.

The FTC enters consumer complaints into the Consumer Sentinel Network, a secure online database and investigative tool used by hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

Another resource is USA.gov (or GobiernoUSA.gov for the Spanish-speaking) of General Services Administration and.  They are spearheading a bilingual online campaign titled “Help for Difficult Financial Times/Ayuda para superar dificultades económicas” to assist individuals and families throughout the United States.  The goal of the campaign is to connect people with tools and information that will help them cope with financial challenges.

Social Media is being utilized to showcase government resources with a focus on five main areas: jobs, housing, money/credit and debt, family, and health. The campaign is also highlighting two comic strips that offer tips for children on how they can help their families save money.

For more helpful information, see part two of this article series: “Settling credit card debt – Part 2.”  

Related Events

Related Articles

Related Resources