You know the debt consolidation and settlement industries are doing well when even the New York Times devotes a front-page story on its Web site to the good fortunes of the industry. It’s debatable, though, whether the New York Times story will do much for the industry’s reputation. The long feature story paints the debt consolidation and settlement industries as being filled with unethical businesses that take money from desperate consumers and then provide them with little to no service. The story highlights the cases of consumers who did spend good money for debt relief only to find that the companies with which they worked did nothing to reduce their debt.
A Thriving Industry
The Times story covered the annual meeting of the United States Organizations for Bankruptcy Alternatives, a trade group that includes debt consolidation and settlement companies, held in Palm Beach, Florida. The meeting was an extravagant one, according to the Times story, featuring plenty of cocktails, live music and loads of food. It’s a sign that the debt-relief industry is doing well as consumers struggle to keep their debt levels down. This isn’t surprising: Many consumers have lost high-paying jobs. Others have seen their annual incomes cut as employers force them to take unpaid days off. These consumers are putting more purchases on their credit cards, building up their debt as they do so.
The Times story quotes several industry watchdogs who say that debt consolidation, settlement and other industry companies have built their profits by fleecing desperate consumers. Some debt-relief companies charge fees as high as 15 percent to 20 percent of the credit card debt being carried by their customers, the Times story said. The story also cites the experience of a Kansas City woman who spent $4,000 on a debt-relief company only to eventually drop out of its program after a credit-card company sued her for payment. She discovered that little of her debt had actually disappeared.
The truth is that the debt consolidation and settlement industries are like most others: There are unethical businesses in the industry. But there are also honest ones that do provide valuable services for the fees that they collect. The key is for consumers to do the research necessary to determine which debt-relief companies are ethical and which are not. Consumers should always ask debt-relief companies for a list of their fees, in writing. They should also ask how long it will take them to either pay off or settle their debt. Without doing this research, consumers run the risk of losing even more of their money to debt consolidation or settlement companies that are scam artists.