(Barbara from New Jersey) I have about $10,000 in credit card debt. I have seen commercials for Morgan Drexen and other debt settlement companies. Is this a good idea? Should I hire a debt settlement company?
Dear Barbara,
Your credit card debt does not appear to be an extreme amount, and one that most households of even moderate means could manage to repay over an extended period of time. Of course, I know nothing about your income level or budget, nor do I know about your job security.
In order to decide if you need debt settlement, consider if you would be able to repay your debt if the payments were just a bit lower. If so, then utilizing a preferred payoff approach or snowball method might be a great option. For these self-guided approaches, PowerPay is an effective tool. It was developed by Utah State University and is free.
If you need a more structured repayment method, then credit counseling is a better option. Some agencies are nonprofit while others are for-profit. You may qualify for a lower interest rate and lower payments.
Finally, if your accounts are already being charged off as bad debts, then debt settlement might be a preferred option. Debt settlement allows you to come up with a lump sum of cash to partially repay the debt and call it even. It requires creditor approval and a balance of cash that can be sent in one single payoff.
Debt settlement companies try to appeal to your desire to make monthly payments rather than come up with a lump sum balance, but all they are doing is pooling your cash and earning interest off of your money until a future settlement is arranged. You could do the same thing by depositing or transferring money into a savings account every month to be used toward your own settlement arrangement. Keep in mind that a debt settlement company will normally charge a 15% surcharge to cover their fees, money that you do not have to pay if you settle your own debt.
If you feel overwhelmed and believe that one of these companies can make your life better, consider the challenge of finding a reputable debt settlement firm. There is no shortage of bad news about debt settlement companies that have run afoul of state regulators.
- Credit Solutions, one of the leading national debt settlement companies finally shut off their phone numbers after multiple lawsuits from states’ attorneys general.
- Allegro Law and related Allegro Financial were seized by the Alabama Attorney General for consumer protection violations.
- Hess Kennedy and related Consumer Law Center left clients empty handed after being shut out of North Carolina, and eventually shut down.
There is so much bad news, why would you risk losing all of your money to a rogue company when you can do the same thing on your own. If you do decide to sign with a settlement firm, make sure you evaluate the reputation of the company carefully. See what the Better Business Bureau has to say about them. Also contact your state’s attorney general to determine if the company is licensed and in good standing in your state.
Hopefully the above information is an in-depth, objective response to your question. Of course, my concise subjective response is, “hell no”. They are a waste of money, grossly overstate their abilities and have been a favorite target of consumer protection regulators. Why take the risk?
