BBB Warns Consumers of Debt Settlement Companies Making Unrealistic Claims

Better Business Bureau serving Eastern North Carolina (bbb.org) is warning financially troubled consumers to beware of misleading debt settlement companies that claim they can easily reduce or eliminate debt.

Since 2007, BBB has received more than 3,500 complaints from individuals in all 50 states, including many who paid hundreds of dollars in upfront fees to debt settlement companies only to fall deeper into debt. Locally, BBB has received 45 complaints against debt settlement companies in Eastern North Carolina within the last 12 months, and over 11,000 inquiries about this type of business. The annual inquires regarding credit and debt consultants have more than tripled from the 3,200 received in 2007, when the recession is thought to have started.

“The debt settlement industry is flourishing and many families are being lured into believing that debt settlement is an easy fix,” said Beverly Baskin, President and CEO of BBB serving Eastern North Carolina. “The truth is that the process doesn’t work for many consumers, there may be serious negative consequences, and should primarily be used as a last ditch effort to avoid bankruptcy.”

A debt settlement, or debt negotiation, often involves a consumer paying an upfront fee to a debt settlement firm that promises to negotiate a settlement with creditors for less than what is owed. The debt settlement business and the consumer establish a plan for consumers to make payments to the debt settlement company or a third party. The company claims to use those funds to pay any negotiated settlements. It will usually take at least six months to a year before there is enough money to start settling accounts, and during that time the consumer will typically not be making payments to creditors. Not only does this put the consumer at risk of having creditors file garnishments or other legal actions, his or her credit rating will likely suffer as a result of not making required monthly payments.

Many complainants to BBB allege that instead of having their debt settled as promised, they were driven deeper into debt, sometimes sued by their creditors and had their wages garnished. Other complainants decided after making several months worth of payments that they did not want to proceed with the debt settlement process, but the debt settlement company would not repay the accumulated payments.

Before enlisting the help of a debt settlement company, BBB recommends that consumers:
•Stay away from red flags. These may include high upfront fees, promises that are too good to be true, and claims that it’s a fast, easy and painless process.
•Contact their lender first. Try to work out an agreement directly with your lenders before enlisting outside help.
•Seek help from a non-profit credit counseling center. Credit counseling centers can provide guidance for little or even no cost. You can find a credit counseling center near you at the National Foundation for Credit Counseling, www.nfcc.org.
•Consider debt settlement only as a last resort before filing for bankruptcy. The debt settlement process can take years and have a severely negative impact on your credit rating and can limit your access to future credit. In the meantime, your credit card company or other creditors can decide to take you to court and garnish your wages
•Research the debt settlement firm with BBB first. Find out how many complaints it has received, how the firm responded to complaints and whether or not there are any recent government actions or lawsuits against the company.

More advice on managing credit and paying down high balances is available through BBB’s Managing Credit – Made Simpler at www.bbb.org/credit-management/.

The Better Business Bureau serving Eastern North Carolina is a 501 (c)(6) not-for-profit corporation serving 33 counties in Eastern North Carolina. The organization is funded primarily by membership dues from more than 2,900 local businesses and professional firms. The BBB promotes integrity, consumer confidence and business ethics through business self-regulation in the local marketplace. Services provided by the BBB include, reports on companies and charitable organizations, general monitoring of advertising in the marketplace, dispute resolution services, and consumer/business education programs. All services are provided at no cost to the public, with the occasional exception of mediation and arbitration. Visit bbb.org.

Better Business Bureau serving Eastern North Carolina
5540 Munford Rd., Ste. 130
Raleigh, NC 27612
Media Contact: Courtney Smith
csmith@raleigh.bbb.org
919-277-4220

This release was published on openPR.