The rules that protect consumers who work with debt settlement firms
by Michael Bovee
5 Debt Settlement Do's and Don'ts
The True Cost of Debt Settlement
Am I a Good Candidate for Credit Counseling?
If you are struggling to keep up with your credit card payments and are worried that you may have to file for bankruptcy, settling those debts is an option you may want to consider. Debt settlement involves negotiating agreements with your creditors that allow you to pay off your cards for less than their outstanding balances. You can settle your own debts, or you can hire a settlement firm to do the negotiating for you.
In 2010, the Federal Trade Commission (FTC) amended the Telemarketing Sales Rule to protect consumers who work with debt settlement firms that market their services by phone. The changes were necessary because too many of these firms were making unrealistic promises to consumers about the results they could achieve for them and were charging consumers such large up-front fees that the consumers were left with little or no money to fund the settlement offers the firms negotiated for them.
Here is what you should know about the rules of debt settlement firms:
- Debt settlement firms are prohibited from giving you misleading or inaccurate information about their services. For example, they must be honest about their success rates.
- If you hire a debt settlement firm, it must provide you with the following information before it performs any work for you:
- If a debt settlement firm requires that you put into a dedicated account the money you'll owe for its services and the money you'll use to fund any debt settlements the firm negotiates for you, the account must be located at an insured financial institution. The firm cannot own, control or have any affiliation with that institution, nor can it exchange a referral fee with the institution. Also, any interest earned by the money in the dedicated account must go to you.
- In addition to being barred from charging you an up-front fee for its services, a debt settlement firm cannot collect any money from you until all of the following has happened:
- The fee a debt settlement firm charges you to settle one of your debts must be in proportion to the total fee the firm would charge if it settled all of your debts. However, if the fee is based on the percentage of what you save through settlement, then the percentage must be the same for each settled debt.
- The cost of its services
- The potential downsides of settling your debts
- When you can expect to see results from the firm's efforts on your behalf
Are you heading for debt trouble? This simple checklist can help you.
- It's provided you with a settlement agreement and you've agreed to the terms outlined in the agreement.
- The firm has settled at least one of your debts.
- You've made at least one payment on the settlement.
Updated October 2016
Michael Bovee is the founder and president of Consumer Recovery Network (CRN), a fair and ethical debt settlement firm. CRN is unique in the industry in that it supports consumers settle their own debts by providing them with information and coaching and it also offers full-service settlement assistance. Michael has been a vocal advocate for reform of the settlement industry.
Take the Next Step:
- Am I a good candidate for credit counseling?
- Stop struggling financially. Take these steps to get out of debt and begin the journey to financial freedom!
- For more on debt settlement and negotiation visit the TDS library.
- Stop struggling to get ahead financially. Subscribe to our free weekly Surviving Tough Times newsletter aimed at helping you 'live better...for less'. Each issue features great ways to help you stretch your dollars and make the most of your resources. Subscribers get a copy of Are You Heading for Debt Trouble? A Simple Checklist And What You Can Do About It for FREE!
Share your thoughts about this article with the editor.
I often wonder if I should be seeking professional help to get my debt under control! Tell us: Yes, I'd like to find out if I am a good candidate for credit counseling or No, I don't think I need couseling but I would like to find out how I can pay off my credit cards more quickly.
More Debt Tips & Tools
- 6 smart strategies for paying off your credit cards
- 5 great second jobs to bring in extra cash
- Pay down debt now or save: Here's how to choose
- Can I get a debt consolidation loan with bad credit?
- Easy ways to build an emergency fund
- Key steps to break away from "keeping up with the Joneses" syndrome
- When you're seriously upside down on your auto loan
- This week's Readers' Tips
- Reduce your debt step by step
- Am I a good candidate for credit counseling?
- Do I have a debt problem?
- Compare personal loan rates
- Get free answers to financial questions
- Get free answers to legal questions
- Calculate the real cost of your debt
- Debt pay-down calculator
- Calculate the true cost of paying just the minimum