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 As economic times remain tough, U.S. consumers' credit card debt hovers at about $852 billion. Average household credit card debt is more than $15,000. If you are struggling to manage debt, then ads like these may be tempting:
What Are Debt Settlement Programs? Debt settlement companies are for-profit companies that, for a fee, try to negotiate lump sum settlements of unsecured debts for less than the amount you owe. To "qualify," most companies want you to have at least $10,000 in debt, but that amount varies widely. After you sign up, you are asked to save a certain amount monthly in a special account or your own account. When you've accumulated a predetermined sum, and only then, the company will begin trying to negotiate settlements with your creditors. However, most companies charge an up-front fee, typically 15% to 17% of the amount you owe, plus monthly fees. Most companies take these fees out of the amount you are saving. In many cases, the first few months of saving may all go to fees. Some companies may charge a back-end fee – a percentage of the money they save you – in addition to the up-front fees. The Federal Trade Commission (FTC) considers large up-front fees as unfair to consumers. Such large fees mean that people who already have problems paying bills tend to drop out of the programs before the companies even begin to try to negotiate a settlement. In spite of money-back guarantees, getting money back can be difficult. Many debt settlement companies also advise you to quit paying your credit card accounts, even those you may be current on. The reason, they say, is that creditors won't negotiate settlements until the accounts are in default. Many companies imply that not paying these accounts will hurt your credit rating only a little, less than bankruptcy, because you are in their debt settlement program. However, according to a recent report by the Government Accountability Office, the FICO company (which developed the most frequently used credit scoring program) indicates that your credit score will take a big hit and that being in a debt settlement program has no effect on how your credit is rated. There is also no guarantee that the company will be able to negotiate a reduced settlement. How Reputable Debt Counseling or Debt Management Options Differ from Debt Settlement Reputable, nonprofit credit counseling services help you look at your complete financial picture. They typically help you develop a budget and, often, a debt management plan. In such debt management plans, the credit counseling organization typically works with your creditors to develop a payment plan that has lower payments, but the total amount owed is not reduced. Reputable nonprofit counseling organizations may charge a modest fee for helping with debt management plans. Debt consolidation loans, another option, are used to pay off full balances of credit card and other debt. You make just one payment for the new loan rather than multiple payments. In certain circumstances a consolidation loan from a reputable lender, such as DCU, may result in paying less interest overall and sometimes may result in a lower payment. The term (length) of the loan and its interest rate (annual percentage rate) are factors in whether a consolidation loan achieves these goals. Options for Managing Debt Contact your creditors yourself. Experts suggest that you keep lines of communication open with creditors. By calling your credit card companies directly you may be able to negotiate better terms. Consider credit counseling. Talking with a reputable, nonprofit credit counseling organization can help you develop a plan to manage your money, bills, and debts. Talk first to your credit union about services it may provide or a credit counselor it recommends. DCU offers the BALANCESM Financial Fitness Program, whose services include reviewing your credit report, developing a debt management plan, bill payment schedules, advice on the quickest way to pay down debt, and money management. |
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| Digital Federal Credit Union PO Box 9130 Marlborough, MA 01752-9130 508.263.6700 • 800.328.8797 • dcu.org • dcu@dcu.org TTY 800.395.5146 (For hearing impaired only) Have you had a good experience with DCU that you want to share with others? Send us an email at dcu@dcu.org or mail it to: DCU Attn: Marketing Dept. PO Box 9130 Marlborough, MA 01752-9130 |
For direct deposit: routing and transit # ABA 211391825 Editor: James Paquette To apply for a Home Equity Loan, Consumer Loan, or Mortgage anytime, call 508.263.6700 or 800.328.8797 (select 3) or visit dcu.org. For a complete listing of DCU's rates, visit our web site at dcu.org or stop by your nearest DCU branch.  Images may be from one or more of these sources: ©Thinkstock, ©iStock, ©Fotolia. ©2010 Digital Federal Credit Union. |