A reader that glances at my blog might mistakenly conclude that I recommend consumers pursue a debt settlement strategy far more often than I would any other. If that is not the case, then why does the topic of debt settlement, at least thus far, clearly dominate much of the content on this blog? Simple. The debt settlement Industry, by a large margin, is harming many more consumers than all of the other “debt reduction strategies” combined.
As an advocate for consumers, it is my job to stick a finger in the flute of the Pied Piper promises that many Debt Settlement companies are playing. My articles help to educate consumers about the realities of the debt settlement approach and the lengths at which many companies will go to deceive and enroll consumers into programs that are counter intuitive to their best financial interests.
There are numerous ways Debt Settlement companies can harm consumers. In my opinion, most of the damage is done because of two specific reasons.
1. Debt settlement companies that will enroll any client they can collect a fee from, regardless of the financial viability of a debt settlement strategy given the client’s circumstances.
2. Debt settlement companies, that charge most, or all of their fees before successfully settling their client’s debts.
If you want to know whether or not a Debt Settlement Company will put your best financial interests above their profits, you can start by looking at their fee structure. If they don’t tie their fees to your success, and they are asking you to pay all of their fees before they perform a majority of the services that they enthusiastically promise during the initial sales pitch, then they “couldn’t care less” about whether or not they can help you. All they care about is whether or not they can collect a fee from you until you realize what is going on and put a stop to it.
Debt settlement can be a good option to quickly get out of debt if your financial circumstances warrant an aggressive approach, however it is certainly not the best option in all situations. Since most debt settlement companies charge most or all of their fees prior to settling their client’s debts, than in my humble opinion, most settlement companies should be avoided by consumers.
As I have time I plan to write more articles that branch into other areas of debt reduction and personal finance. However, at this point in time I feel that with my limited writing schedule, consumers are best served by a continued focus on the industry that is causing the most damage to the very people it purports to help.
Consumer Rules of Thumb
1. Research all options available before making any decisions.
2. Don’t let any sales person rush you into a decision, especially when you don’t fully understand the option.
3. A Free Consultation is typically a euphemism for Free Sales Pitch (doesn’t make it necessarily bad, just be aware).
4. Don’t listen to any sales person that recommends a program before fully understanding your financial circumstances and goals.
As always, if you would like to contribute your thoughts, and have something to add to the article, please do so by Commenting.
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Great article. Debt by far is one of the biggest problems in this country. We consume more than we produce on an individual level but also has a nation. this can only continue for so long before the balance is shifted and catastrophe hits. We are seeing it in the american consumer. Now we are beginning to see the predatory nature of people with these debt consolidation services. Right off the bat the flag should be when they start charging fees. If you need to reduce your debts. the best way is to go straight to your creditors and try to cut a deal
Hello Kunal,
I appreciate you sharing your thoughts on my blog. I do however disagree with your last point. Given the current state of the economy I often do not advise consumers to go straight to their creditors to cut a deal unless they understand what they are doing and what the potential ramifications will be. If you are current on your payments to a creditor but are struggling, more often than not, if you contact your creditor to attempt to lower your interest rate, that will simply cause them to look into your file and if you have available credit left, it is likely that they will cut it. That can be a major blow if you were counting on that credit as a cushion. So while I do agree there are times it is beneficial to speak directly to your creditors, if you don’t understand how your creditors operate, you can sometimes find yourself in worse shape than you were before you made that call.
Can you recommend any trustworthy debt settlement companies? I agree with those free consultation tactics – they’re nothing but sales talks!
Yes there are a few good programs out there. I tend to not make specific recommendations though until I fully understand a clients overall financial situation. For instance, a great settlement program will not be of much help to you if your financial situation really calls for bankruptcy. Too often consumers put the cart before the horse and go looking for a company or program to help them out of debt, before they take the time to figure out what strategy actually makes the most sense given their circumstances.
Doesn’t law have any safeguards for this kind of businesses? It is very easy for them to take advantage of people who are neck deep in debt knowing that these people may feel kind of desperate.
.-= Megan´s last blog ..Check City =-.
Yes there are laws in place against unfair and deceptive practices, however, there are so many of these programs popping up, that it is impossible for the FTC and the Attorney Generals to stay on top of all of them. More often than not, legal action is driven by consumer complaints. A settlement program can operate for several years before enough consumers realize that they are not getting what was promised in the sales pitch. So programs can pop up, make a ton of money off of financially hard hit consumers, and then simply file bankruptcy if the FTC or Attorney Generals eventually catch wind of what they are doing. Consumers need to be educated and protect themselves. Remember, laws typically don’t stop people with ill intentions.
Helpful advice, I especially like “free consultation = free sales pitch” that’s true with most consultations.
Yes, it isn’t the case 100% of the time, but more often than not, we get what we pay for. Unfortunately most consumers learn the hard way that free advice can be very expensive if it is the wrong advice or simply a sales pitch for something they don’t need. Everything has an opportunity cost associated with it.
Hey,
Thanks for sharing my distasteful views on companies that exploit the sad financial state of our debt ridden society.
There should be more companies that were like yours and mine that gave free tips on budgeting and exposed the truth about these crooks. That way more people would not only stay away from them, but hopefully they would learn something and take control of their finances the old fashioned way. With budgeting properly and spending less than they earn.
Anyway, great post. Anytime you’d like to write us a guest post you are more than welcome.
Cheers,
Guy
.-= Guy G.´s last blog ..The Mind/Money Equation – Tips on Budgeting =-.
This is a great site, I have been going back and forth about Debt Consolidation for awhile, but could never pull the proverbial trigger so to speak. It has never felt right to give so much personal information to companies that are so hard to research.