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Beware of False Promises on Debt

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By Michelle Singletary
Thursday, January 1, 2009

As some bring in the new year with cheer, others just see another year of cowering under what appears to be insurmountable debt.

And when you cower, you can become desperate and lose whatever common sense your mama or daddy may have passed on to you. Otherwise, I can't explain why someone would pay a company nearly $900 or more for the mere promise of helping reduce his or her debt.

One desperate reader from Rochester, N.Y., e-mailed me asking for help in persuading her husband not to pay a Florida debt settlement company an upfront $895 fee. The company promised to help cut the $21,000 they owed in credit card debt. The wife said they began relying on credit cards after her husband found himself out of work after 24 years on the job.

"My husband was recently contacted on the phone by a company alleging it was a 'debt reduction' organization," she wrote. "They are willing to guarantee a $3,000 reduction or our money back. They have power-of-attorney forms to be notarized. My husband wants to get moving on it. Is this a good idea?"

Debt settlement companies promise to act on your behalf to negotiate with your creditors to reduce your debts. But this is something you can do yourself.

Before I even began to look into the possibility, I suspected working with that company wasn't a good idea. There were just too many red flags. I didn't name the company because I don't want my warnings to be just about this firm, but about the growing practice of debt settlement.

To confirm what I spotted, I contacted Gail Cunningham, senior director of public relations for the National Foundation for Credit Counseling. Here's what alarmed us:

· The company initiates contact. "They possibly purchased a list of consumers who were delinquent on their debts," Cunningham said. "Companies target vulnerable people who are desperate to get out of debt and make the collection efforts stop."

· The company requires a large upfront payment. Why doesn't it occur to people that they could use that substantial sum of money to pay down their debt? Equally troubling is that the company gets the money before delivering the service.


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