If your phone keeps ringing from creditors clamoring to be paid, and ads screaming "Get out of debt today!" begin to sound good, you might be pondering debt settlement or consolidation as a possible solution to your troubles.
In debt settlement and debt consolidation, you combine your debts and pay only a portion of the total. But before you sign up, consider these promises that debt settlement companies can't keep.
1. Satisfy your debt for cents on the dollar: It's difficult to make and keep that promise without knowing the details of how much money you owe, how long you've owed that money and to which creditors, says Gail Cunningham, a spokeswoman of the National Foundation for Credit Counseling in Silver Spring, Md.
"They don't know your past payment history. They don't know which issuer you owe," she says. "Each person has different assets that can be used to satisfy the debt. . . . You can't make a blanket statement."
3. You can't get help without paying an upfront deposit or fee: Some debt settlement companies may accept an upfront fee of as little as $50, says Jessica Cecere, the president of the Consumer Credit Counseling Service of Palm Beach County and the Treasure Coast in Florida.
But typically, the debtor pays the debt settlement company a percentage of the debt owed -- often 15% -- for negotiating the debt, Cunningham says.
The firm negotiates a payment between you and creditors and accumulates enough money to make that payment. "The debt settlement company will hold the money until you reach the settlement amount," she says. "Meantime, your creditors aren't being paid."
While you're accumulating that payment, "you're not paying your bills and you're getting further and further into debt," Cecere says.
Instead, go to a nonprofit credit counseling firm that might charge you only $20, if anything, Cunningham says. Instead of billing the debtor, these counselors often get what's called a fair-share percentage payment from your creditors after you've paid.
Continued: 'We'll handle everything'
