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Beware of Debt Settlement Scams

Have you gotten a phone call, email or snail mail offering to help you settle your credit card debt? Beware it may be a scam!

My dad said many times when we were kids,

If it sounds to good to be true, it probably is.

Think of anytime, when you really needed to get out of a bind and someone offered a solution that would instantly solve your problem, even though it took years to get you into that problem. It was probably too good to be true.

There is no company out there that is going to help you and risk money, unless they stand to make more than the risk. There are many companies who offer to help you settle one or many debts and the contracts negotiated for this service are where the scam comes into play.

A Debt Settlement is…

a lump sum that’s less than the full amount you owe. To make that lump sum payment, the contract asks that you set aside a specific amount of money every month in savings (usually a saving escrow set up by the settlement company.)

The Federal Trade Commission has an informative article about Settling Credit Card Debt.

What is the difference between a Settlement Plan and a Settlement Scam?

To settle debt, a phone and/or written conversation is had with the company to whom you are in debt. The conversation is a process of negotiating an amount of money, less than the total, that will satisfy the debt. There are companies who you can get into contract with who will do this negotiating for you, they will charge sometimes substantial services fees for their time and effort. If you choose to use a company to negotiate your settlement plan:

Avoid doing business with any company that promises to settle your debt if the company:

  • charges any fees before it settles your debts
  • touts a “new government program” to bail out personal credit card debt
  • guarantees it can make your unsecured debt go away
  • tells you to stop communicating with your creditors, but doesn’t explain the serious consequences
  • tells you it can stop all debt collection calls and lawsuits
  • guarantees that your unsecured debts can be paid off for pennies on the dollar.

These may be signs of a Settlement Scam!

If you choose to attempt your own settlement plan try these techniques:

  • Determine what you can afford to pay.
  • Ask the debt collector to remove all negative information from your credit records related to the settled debt that has been added to your records since the debt was turned over to him.
  • Put the deal in writing. Get the details of the agreement in writing before you give the collector any money.
  • How much you have agreed to pay.
  • Whether you will pay the settlement amount in a lump sum or over time.
  • When the lump sum or payments are due.
  • How you will make the payment(s), such as via an electronic bank transfer or with a cashier’s check.
  • That the debt collector agrees to report to the credit bureaus that your debt has been “paid in full” as soon as the settlement amount is received.
  • Any concessions that the debt collector has agreed to make.
  • Conditions that breach the agreement and the consequences of the breach.
  • Do not sign the agreement until it reflects everything you agreed to and unless you understand everything in it.

This list is discussed further in Negotiating a Debt Collection (for dummies.)

Remember, when signing contracts drawn up by financial institutions it is always a good idea to have an Attorney look over the agreement to be sure you are not overlooking critical details.

If you are considering what your best financial option is Call Don Harris, New Mexico Bankruptcy Attorney.

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