Tuesday, January 27, 2009

Beware of “Low-Ball” Debt Settlement Companies

When searching for a quality debt settlement company, it is important that you find a reputable company that operates in the spirit of full disclosure. And one that doesn’t low ball.

Especially in our unstable economy, far too many debt settlement companies are pulling the wool over the eyes of unsuspecting consumers. A common false claim is guaranteeing to settle a debt for a specific reduced amount.

The most scandalous debt settlement companies also low ball. They skim their estimates, quoting in the “30-40%” debt settlement range. The scam is to attract more clients through artificial low monthly installments.

Recently, our eyebrows were raised by a consumer who had a $76,000 total debt, who was grossly misquoted by a law firm that claimed they specialize in debt settlement. The consumer was almost fooled into signing up with the law firm because they offered a lower monthly payment. But thankfully, we found the following kinks in this competitor’s written quote:

Not only was their quote about $8,000 higher in fees than ours, but their monthly payments included a “Good Faith Down Payment” fee. Unbelievably, the fee which was over $5,000, had to paid in the first four months of the program. Thus, after five long months, this poor guy would have started saving the first penny toward building up settlement funds.

It gets much worse...

The law firm also charges a fee of 25% of the savings based on an estimated settlement average of 40%. But the estimate was UNREALISTIC. On the average, a debt settlement manifests in six accounts; each account being settled one at a time. Until the remaining accounts are settled, their balances can continue accruing interest, late fees, and possible over-the-limit fees.

A problem with the common “low-ball” practice is that people assume they’re getting out of debt sooner. Yet, if the the add-on of interest and fees is not quoted, an estimated 36 month program could easily take 40 or more months to complete.

In contrast, because our company, Debt Free League factors in the time it would take for each debt to be physically settled, we estimate our settlements at 50% to adjust for the accrual of interest and fees. This allows clients to save more each month for settlements.

If low monthly payment sounds too good to be true, chances are that you’ll pay up a whole lot more than you thought!