(WXYZ) - As millions of Americans struggle with out-of-control debt, many of them are turning to debt settlement companies to lighten their load. But instead, they’re finding themselves in deeper trouble.
There’s no shortage of ads or websites for debt settlement companies that promise to negotiate with your creditors to settle your debt, usually about 40-to-60 cents on the dollar.
The idea sounded enticing to Laura Sweet and her husband.
“This would help us out and be able to get our finances in order and kind of start fresh,” says Sweet.
They had racked up tens of thousands of dollars in credit card debt as they put themselves through school and had two small children.
As with many of these companies, the Sweets say they were told by American Debt Services to send in almost a thousand dollars each month to a special bank account and that money would ultimately be used to pay any negotiated settlements. In the meantime, the Sweets say they were told not to pay any of their bills.
“We were making this monthly payment and it was a significant amount and then all of a sudden we were still getting phone calls, left and right. And nothing was going on,” Sweet says.
All the while, more interest and late charges were tacked on. Frustrated, Sweet checked the bank account and saw it was zero.
“When I called to confront them about that, they said it was their fees,” recalls Sweet.
No debt settled yet and the money was gone.
“They took probably about six-to-eight-thousand dollars,” she says. “And to find that it’s just literally gone, it just literally takes the breath out of you.”
Since the start of the recession the Better Business Bureau has received more than 3,500 complaints from people, many who paid hundreds, even thousands of dollars up front to these companies.
“The promises that were provided were never fully realized by the consumer. So, as a result, they’re challenged and they’re still back to where they started, and potentially worse off,” says Melanie Duquesnel of the BBB.
The complaints include a family from White Lake that gave $12,000 to a debt settlement company to help settle a $120,000 debt. The company kept it all as a service fee before beginning any work on their behalf. A woman from Utica complains to the BBB that she had to withdraw money from her 401k to pay off creditors, when a debt settlement company failed to use the $25,000 she gave them to pay down any debt.
“If a credit settlement company is asking for upfront fees, buyer beware," Duquesnel advises. "Actually, I would turn around and walk out of the office."
Or just hang up the phone.
“Because their involvement and their inducement to finalize everything for you has already been alleviated because you’ve already paid them up front,” says Duquesnel.”
The Federal Trade Commission has proposed a complete ban on customers giving money to these companies until the companies do what they promise and settle the consumers' debts. A final decision is expected next month.
In the meantime, before reaching out to a debt settlement company, the Better Business Bureau recommends:
1. Try contacting your lenders yourself to try to work out a deal.
2. Seek help from a non-profit credit counselor.
3. Consider a debt settlement company only as a last resort before bankruptcy.
4. If you decide to use a debt settlement company, check it out first with the BBB. Look for any complaints and if and how they’ve been resolved.
“It’s frustrating and you look back and you say, ‘why did I do this?’” asks Sweet. “It feels like a lot of people are just out there to get your money.”
Action News called American Debt Services regarding the Sweets' complaint and did not hear back from the company.
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 .
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/ .
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