Quick Answer: Capital One can legally continue adding interest and fees to debt accounts even during settlement programs, causing this borrower’s balance to grow from $6,600 to $8,900. Debt settlement often results in higher total costs when factoring in continued interest accrual, settlement company fees, and tax obligations on forgiven debt amounts.
“Dear Steve,
My question is this: I am enrolled in a debt consolidation program with care one. I have already settled 2 of the 3 accounts that are part of my plan. The last one to be settled is a capital one account.
I talked to care one today regarding my account and they told my that the company representing capital one said that the money i owe them is roughly 8900 dollars. Well when i started the program with care one the balance on that account was listed as 6600 which breaks down this way, my card max was 5000 to which capital one conveniently added 1600 interest.
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So I was under the impression that once you enter into one of these programs that the amount on your account cannot go up. The amounts on the other 2 cards that were settled never changed so I don’t understand why this one did. So they are saying that they will settle for 5300 which would have to be paid monthly at a rate of 700 plus or add another 2600 cash to the escrow amount.
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They mentioned something about the stature of limitations but I’m really not sure how all that works either. So in the end I would be paying a lot more than I would have if I could afford to make the monthly payments. Now the federal government also wants us to pay on the money that these companies settle for us, plus we pay the debt company so where do we get the break?
How can they legally do this, keep adding more money to the account? At this rate it will never be paid. I couldn’t afford the original monthly fees which is why i ended up at a debt consolidation company in the first place. I just want to get out of debt and start fixing my credit. This is so frustrating I don’t know what i can do. Please advise. Thanks for your help.
Maureen”
Dear Maureen,
Capital One has the right to follow the terms of the cardholder agreement you had with them. I would bet that agreement said that once you stopped making the minimum payments your interest rate would go way up, you would be charged a monthly late fee, and when you went over your limit you would be charged a monthly overlimit fee as well. Apparently it’s been some time since you last made a payment.
This is a well known fact in the debt settlement world. It’s called accretion or account creep.
You made a curious statement, “Now the federal government also wants us to pay on the money that these companies settle for us, plus we pay the debt company so where do we get the break?”
I assume you are talking about the potential tax due on the settled debt. That’s nothing new and has been around for years. The tax may be avoided by either being insolvent when you finish settling your debt, and completing IRS Form 982, or if you had filed bankruptcy and eliminated all of your debt in 90 days or less, years ago.
The break offered by settling is nowhere as great as it is claimed by most companies when you factor in the fees, charges, account creep, etc.
Your option at this point is to ask Care One to obtain on your behalf or for you to contact Capital One and ask for a detailed statement of the charges against your account to confirm the new higher balance is accurate.
I realize you are upset about this situation but the reality is it is to be expected with a long term debt settlement approach. It is one of the many reasons that bankruptcy for many, makes much more sense.
Please post your responses and follow-up messages to me on this in the comments section below.
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