Jun 2010

I Changed My Mind on Debt Settlement–How Can I Cancel?

(Rolf from Florida) Today I signed a debt settlement agreement on the internet, THEN read about the pitfalls. How can I get out of the agreement before any payments are autmatically withdrawn?Dear Rolf:

Be thankful that you discovered the futility of debt settlement plans before you threw away thousands of dollars on fees. Most of their clients are not so fortunate.

You can cancel the agreement prior to your first payment, which is the best time to do so. Otherwise, you will likely lose your first several payments as fees until you cancel.

Calling the debt settlement company to verbally cancel is not sufficient. You need to provide them with a written request to terminate the contract.

I recommend faxing and then mailing a termination letter to them. You should keep a copy of the letter that you send. Additionally, sending the termination letter via certified U.S. Mail with a return receipt provides you with proof that the letter was delivered and signed for by an authorized representative for the company.

You will need to consult the contract that you signed to make sure that you have met their requirements for termination. They may provide a specific address or some other requirement that you should follow to ensure that they get the message.

Finally, you will likely see a termination fee in the contract. It is common for debt settlement companies to charge a fee of roughly $200-300 if you terminate the contract prior to completion. This fee is usually drawn down from the funds that you have already submitted. Since you have not yet made a payment, they would have to request a separate payment from you.

Well over 90% of debt settlement company clients fail to complete their plans. It is unlikely that the company would vigorously pursue a termination fee from you. If they do, you should consider fighting it.

It is worth mentioning to your bank that you initially approved an automatic payment plan to that company but that you have cancelled their agreement. Your banker can make sure that no unauthorized debits occur.

Now that you have saved yourself from certain failure, you still will need to address your financial situation. I strongly recommend that you pursue credit counseling to evaluate the seriousness of your situation and to determine available options. As is the case with contracting with any company, you should ensure that the credit counseling organization is reputable. The Better Business Bureau is a good place to go to make sure that the organization has a good track record.


6 Responses

  1. Fred Esterly says:

    Debt settlement can be an easy way to get rid of your credit card debt but there may be better options for you. If you can’t afford to pay off your debt and you are thinking about debt settlement, make sure you are doing what is best for you and also take help of Debt Relief Attorney

  2. lin says:

    looking for negative information on Northwestern debt settlement,LLC and rating…They called my husband and he is fighting cancer,and had to stop working he signed up with them in the past few days while I was at work. I am very worried since they want 400 or a little over per month for six months and let all credit cards go. 2,500 up front that makes.They told him he would not have to declare the write off settlement on taxes,that the Obama law or new law would prevent it or something to that effect.Sooo worried help!!!

  3. Kenneth Long says:

    Dear lin:

    Unfortunately, you are out $2,500 in fees and have nothing to show for it. Your situation is exactly what the new Telemarketing Sales Rule is supposed to help prevent. The representative was incorrect when stating that a settlement would not have to be reported to the IRS. In fact, your lenders are REQUIRED by federal law to report forgiven/cancelled debt of $600 or greater on Form 1099-C. Unless you can prove insolvency (which would have made bankruptcy the better choice), you will likely have to pay taxes on that forgiven debt at your highest marginal tax rate.

    I am sorry to be the bearer of bad news, but you are pretty much committed at this point. Now that you have paid them, it is time to lean on that company and make them work for you. They owe you some amazing settlements. After all, isn’t that what they promised you?

  4. To cancel a debt settlement contract all you need to do is fax your request in writing that you wish to terminate the agreement. Hopefully you signed on with a company that does not charge their fees until they make a settlement. Otherwise, you may find it difficult to get them to issue a refund on the fees they already collected.

  5. Kelly M says:

    I do not know where or who you are getting your information from, but I am a certified credit counselor for a non-profit organization called, ClearPoint Credit Counselors! We do NOT have fees if you wish to cancel your plan! We HELP clients get out of debt! There is a monthly fee, that is $40 or less, and that amount is based off the amount of debt you currently have and also by your State guidelines. If you are interested in signing up for a debt management plan, just make sure they are NON-PROFIT and are in good standing with the Better Business Bureau! I hope you all have a great day! I take pride in my job being a counselor and Helping clients, so I hate to see that people are getting the wrong impression on a debt management plan! THEY really are a good thing when you are in a hardship situation!

  6. Kenneth Long says:

    Dear Kelly M:

    It seems there may be some confusion about the program that Rolf identified. The debtor had enrolled in a debt settlement program, whereas it appears that you are referring to a debt management program. I appreciate the role that you and ClearPoint have in helping consumers understand their finances and how to get a handle on high-interest debt. To clarify, ClearPoint provides debt management programs as a way to responsibly pay back unsecured debts through better terms. To my knowledge, ClearPoint does not provide the debt settlement plans which have been much aligned due to their heavy fees and poor success rate. Kelly I believe that was what you may have been indicating, and I wanted to make sure our readers were clear. Thank you for your comment and for all that you do.

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