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Debt Settlement Comes With Hefty Fees

Talk to credit counselors before signing up for expensive programs

By Mark Huffman
ConsumerAffairs.com

March 27, 2009

Maryland Attorney General Douglas Gansler recommends that consumers consult with a reliable credit counseling agency, including agencies affiliated with the National Foundation for Credit Counseling, before signing contracts with debt management or debt settlement companies.

In Maryland, for example, debt management companies are required to be licensed. These companies seek concessions from creditors, and then collect monthly payments from consumers to pay the creditors and collect fees for their own services.

Unlike debt management companies, debt settlement companies are not required to be licensed in Maryland nor distribute consumers' payments to their creditors each month. Instead, debt settlement companies hold consumers' payments in escrow accounts until enough money has been saved to negotiate a settlement of all debt. This process will not prevent creditors from making collection calls or suing consumers for payment.

"It is important for consumers to know the associated costs and risks before entering into any debt settlement or debt management agreement," said Gansler. "Consumers should be wary of any company that will not provide all the details of its plan before they are asked to sign a contract."

As an alternative to entering into a debt management or settlement plan, Gansler suggests that consumers first contact their creditors to try and settle their debts or negotiate a payment plan. Many credit card companies will work with consumers to resolve their debt situations. Consumers should also check with the Attorney General’s Consumer Protection Division and the Department of Labor, Licensing and Regulation to find out whether complaints have been lodged against the business.

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