Ready to dump your debt? Beware of the pitfalls of debt settlement offers
By Attorney General Roy Cooper
Did you resolve to get out of debt
in the New Year? Now is a great time to get started on putting your financial house in order, but there are some pitfalls you want to be sure to avoid.
Last year, my office received 65 complaints from consumers about debt settlement companies or firms that promise to negotiate your debts down in exchange for an upfront fee which is illegal in North Carolina. Already this year, we’re hearing from as many as 15 consumers a week who are tempted by ads from firms that promise to settle your debts for pennies on the dollar.
If you’re drowning in debt, a debt settlement firm can sound like a lifesaver. But beware. These outfits will charge you hundreds of dollars in upfront fees, as much as 15 to 20 percent of your total debt, and then do little or nothing to really help you.
Here’s how debt settlement companies operate: you’re told to deposit money in an account that is supposed to be used to pay your creditors, but the firm deducts its hefty fee first. You’re told to stop communicating with your creditors while the firm supposedly negotiates with them. Your debts continue to pile up, leading to calls and letters from debt collectors and even court judgments. You wind up deeper in debt than when you started.
Under North Carolina law, it is illegal to charge upfront fees for debt settlement. Help is available for free from reputable non-profit credit counselors.
Instead of throwing away your hard-earned money, take control of your finances by following these steps:
- First, figure out exactly what you owe to creditors. Gather all of your monthly statements and look at your balances and when payments are due.
- Contact your creditors to discuss your options for repayment. Many companies are willing to set up payment plans.
- If you aren’t able to set a budget and stick to it, or if you can't work out your own repayment plan, consider a credit counseling service. Your creditors may be willing to accept reduced payments if you enter a debt repayment plan with a reputable organization. In these plans, you deposit money each month with the
credit counseling service and your deposits are used to pay your creditors.
- Avoid any debt management operation that asks you to pay large fees in advance. To find a non-profit consumer credit counseling service in your community, contact the National Foundation for Credit Counseling at 1-800-388-2227 or www.nfcc.org.
- Watch out for debt buyers. Debt buyers are a type of debt collector that pursues old debts even when the debts have already been settled or paid. Under a new state law, debt buyers must now prove that they have the right to enforce the debt and be able to verify the amount owed. They’re also prohibited from filing or threatening to file suit when barred by the statute of limitations.
- Consider contacting a local bankruptcy attorney if your debt situation is especially difficult.
- Once you've taken steps to get your financial house in order, protect your credit by checking your credit report regularly. You can get a free credit report per year from each of the three credit reporting bureaus at www.annualcreditreport.com. If you see something that isn’t yours, you may be the victim of identity theft—meaning that someone pretending to be you has bought a car or taken out a credit card in your name.
For more help and tips,
or to report a scam
to my Consumer Protection Division, click here
or call 1-877-5-NO-SCAM toll-free within North Carolina.