I’m probably going to get a stern email from the folks at MSNBC saying that I shared too much of one of their stories with you. But the information is so important, you need to read it. I urge you to click through and read the rest of the story.
The basic strategy these firms employ is to instruct consumers to stop paying creditors. Instead, they are told to save money in a separate account. After receiving nothing for many months, the settlement companies say, lenders will be happy to take a lump sum payment for far less than the total debt. Sometimes, it works.
The problem for consumers is that high up-front fees — and additional monthly fees — often mean they have very little to offer creditors after six months or a year in the program.
“The program takes time, we have to get the credit card companies to think they will never see a dime, then approach them with the 50 percent offer,” Hardy said. “The dark side of debt settlement is that most clients could not pay their monthly credit card bills and now we are asking them to send money to our company on a monthly basis. Most of the money paid during the first year goes toward the fees and most clients who agree to debt settlement give up after less than a year. So the company will collect some monthly amount from them for one to 12 months, offer no service whatsoever and not a penny paid goes toward getting them out of debt.”