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Archive for the ‘Debt Settlement’ Category

Q: Hi, I have rec’d an offer of settlement from a collection agency representing CitiCard for about 18% of the current balance. When I asked to have the “line item” (delinquency) deleted from my record (credit report), the manager responded that: 1) it can’t be done; 2)maybe it could be done but only with a lawyer; 3)only CitiCard could do it (being they are only representing Citi, and would defer back to Citi, they could not do it, and won’t ask Citi.)

Continue reading “Will Debt Settlement Appear On My Credit Report?” »

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How’s this for ironic? Debt Relief USA, a debt settlement company that was supposed to help consumers get out of credit card debt, has itself gone belly up, filing for bankruptcy protection.

But that’s not all.

Debt Relief USA had been accused by the Federal Trade Commission of generating millions of dollars in ill-gotten profits. The company allegedly lured people into paying thousands of dollars in upfront fees, and then never actually reducing those clients’ credit card bills. In fact, the feds say that in many cases, Debt Relief USA left its clients even deeper in debt.

Now comes word from the FTC that Debt Relief USA has settled the FTC charges. As a result, the company is permanently banned from marketing any kind of financial products or services whatsoever. The company’s principals were also hit with a $20 million judgment.

That’s the good news for consumers. The bad news, from a justice standpoint, is that consumers won’t likely recoup a dime of that money from Debt Relief USA. Why? Since the company went bankrupt, it has been excused from paying that multi-million dollar judgment.

On a brighter note, if authorities find out the financial information the company gave the FTC wasn’t true and accurate, the full amount of the judgment will become due. Also, through settlement of a separate action brought against Debt Relief USA by the Attorney General of Texas, consumers did get $3.7 million in refunds from the company’s bankruptcy estate and more money will be distributed soon.

Overall, this case shows us why it’s not a good idea to fall for someone promising something “too good to be true.” In this instance, according to the FTC, Debt Relief USA engaged in deceptive practices by promising consumers that the company could eliminate 40% to 60% of their credit card debt and be out of debt in two to four years. Unfortunately, those promised results very rarely materialized.

High upfront fees are just one reason to stay away from debt settlement companies. Here are other reasons to avoid debt settlement firms.

Read the official FTC press release.

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Q: “Is debt settlement OK or is there a better plan?”

A: I really don’t think that debt settlement is OK and yes, I do think there is a better plan. It is called the “Debt management plan.”

The problems with debt settlement, which tends to last about three years to four years or so in terms of paying off creditors that you owe via the debt settlement plan.

The problem with those processes when you go through debt settlement is that your credit rating gets wrecked in the process, because debt settlement companies advise you to stop paying your bills until you have billed up enough money to be able to approach your creditors and attempt to negotiate a settlement, perhaps for $0.20 on the $1, $0.30 on the $1, or maybe $0.50 on the $1 that was owed.

During those six months or so that you are not paying however, you are constantly being reported to the credit bureaus as delinquent. So that means your credit report and your FICO credit score, take a big hit.

There is also no guarantee that debt settlements is going to work out, and some creditors may balk at your terms and choose not to play ball with you, so to speak, and they may take a more aggressive action to collect against you.

Finally, debt settlement has serious tax implications for consumers. Any amount that is essentially forgiven or written off by the creditor is deemed by the IRS to be income to you, taxable income to you, so you have to pay income taxes on that.

So for these reasons, I really do not recommend debt settlement. And yes, I do think there is a better plan, it is debt management.

With a debt management plan, it has no impact at all on your credit rating or on your FICO credit score according to Fair Isaac, the company that created FICO credit scores. The fees tend to be lower for debt management plans as opposed to debt settlement plans.

Also a lot of the really good reputable non-profit agencies that do debt management plans, also make a point to provide you with a serious amount of budgeting, credit counseling and personal finance education to help you to know what you did wrong and to avoid getting back into debt in the future.
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