Credit and Debt Blog

Major credit card companies are increasingly unwilling to cooperate with debt settlement companies. This reflects a growing resentment for the predatory practices of many debt settlement companies as well as the high cost that debtors pay.

Major Creditors Changing Tactics

There was a time when many credit card companies and their debt collectors would settle for as little as 30-50% of the balance. They were trying to avoid posting a bad debt for an even larger amount.

However, the proliferation of fee-hungry debt settlement companies is diverting a growing amount of repayment money away from the creditors that actually hold the debt. This is money that could be going to repaying debt rather than lining the pockets of debt settlement companies.

Creditors Demanding Higher Settlements

Creditors and debt collectors that do settle are asking for a much larger percentage of the balance. Most settlements that are agreed are in the 60-70% range. This is substantially more than what most debt settlement companies “promise.”

Once you add in the continued interest and fees that accrues on a balance, you realize that debt settlement doesn’t really save you much at all. Add in the additional taxes owed on forgiven debt and you really take a financial hit.

Some Creditors Unwilling to Work with Settlement Companies

Discover Financial Services has made it clear that they do not agree with the practices of debt settlement companies. According to spokesperson Matt Towson, “we choose not to work with debt settlement companies.”

If you are considering debt settlement and are looking into debt settlement companies to assist, understand that you are probably much better off either working directly with Discover or through a nonprofit credit counseling organization that Discover offers benefits through. The same is true for American Express, as is indicated by spokesperson Lisa Gonzalez:

There’s no service or benefit that a debt-settlement company can offer our card members that they don’t receive from working with us directly.

Other creditors have become more reluctant to work with costly and largely ineffective debt settlement companies. They prefer to work either directly with the cardholder for a single debt owed, or through a credit counseling organization if the debtor owes multiple creditors.

The bottom line is that if you choose to go to a debt settlement company, the benefits are few, the costs are many and the risks are tremendous. If you truly want to find debt relief, consider getting help from a nonprofit credit counseling organization that receives the support and backing of the creditors in which you owe.