Why Debt Settlement is a Broken Industry

debt settlement texas
by YoTuT

Why Debt Settlement is a Broken Industry

Debt Settlement Providers Claim Huge Saving

Many of the claims are that debts may be settled for pennies on the dollar. However, major credit card companies and many other lenders are rarely willing to settle any debt for less than 60% of what you owe. Out of principal, they are trying to avoid helping to promote settlement services that skim the lion’s share of debt repayment for themselves.

Attorney General Mario Cuomo’s office claims that these companies overstate their successes and try to hide their failures. Many debt settlement companies have success rates below 10%.

Fee Structures to Blame

The predominant fee structure is for debt settlement companies to receive 15% of the total debt upfront in fees. This means that the first three or more of most clients’ payments go directly to debt settlement companies rather than to their creditors. This creates a substantial additional debt that a client must pay before any funds are made available for a future settlement.

Legal Action Often Precedes Settlements

Most clients realize the futility of debt settlement programs because it takes too long to build up an appropriate balance with the company so that a settlement may be reached with a lender. Chances are, they will receive a summons for legal action before they amass enough money to settle with a lender.

Even if a settlement is reached with one lender, it may take many months or years to reach enough of a balance to settle with the next lender. With multiple creditors, the likelihood of facing judgments prior to completing a debt settlement plan is very high.

Debt Settlement Companies Have Poor Reputations

A review of settlement companies shows that most have an “F” rating with the Better Business Bureau.

In addition, the majority have been under investigation or have been sued by the Attorney General of one or more states.

Andrew Cuomo’s most recent investigations are centering on shared beliefs that settlement companies are making economic conditions even worse. These companies are making huge profits at the expense of clients and their creditors. Clients are facing legal action and are having their credit histories shredded, which can negatively impact their ability to buy a car, rent an apartment or even obtain a higher paying job. They are even having to pay more for car insurance because of their lower credit scores!

The model that most debt settlement companies follow has been targeted by New York’s Attorney General. He has labeled these providers as being members of a “rogue industry.”

For related information, research debt settlement company ratings or see what New York Attorney General Andrew Cuomo says about debt settlement companies.

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