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Debt settlement often a scam

In times of perceived financial desperation, many people look for answers in the debt-settlement agencies advertised on television and the Internet. These companies claim that they can stop the harassing phone calls, alleviate financial problems and get your credit back on track. What they do not mention, however, is the fact that few debt settlement programs provide lasting debt relief.

Experts say that debt relief programs rarely work as promised. In fact, most clients still end up paying as much as 75 percent of their owed debt. Despite advertisements to the contrary, the fact remains that debt-settlement companies have little power to help individuals overcome their debt.

Newly released statistics show that only about 10 percent of program participants end up expunging their debt in the promised timeline. That means that 90 percent of people are still drowning in debt long after the initial deadline.

These agencies also pretend to pay your creditors, and they tell you to stop sending payments to credit card and loan groups. This is because the agencies are attempting to amass a lump sum with which to settle your debt with your card companies. Although this may seem like a good plan, creditors will continue to hound you for your payments because you have stopped sending them money. In fact, choosing to use a debt-settlement agency could make your credit score worse because you are ignoring your creditors.

Bankruptcy attorneys say that the allure of the debt-settlement plans is undeniable, but consumers need to beware their optimistic promises about improving clients' credit. One Florida couple, for example, paid nearly $7,000 in up-front costs for their settlement, but they were unable to keep up with monthly payments and eventually lost everything they had invested in the debt settlement.

Although federal regulators are now cracking down on these agencies' unscrupulous practices, people continue to fall victim to the scams. If you have questions about debt settlement, it is best to contact a qualified attorney or financial adviser.

Source: The Washington Post, "Debt settlement is rarely a done deal," Michelle Singletary, Oct. 20, 2012.

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