Released June 16, 2008

ST. PAUL, Minn. — Late night TV has many advertisements for “debt settlement.” It sounds good: “Cut your debts in half,” “Eliminate your debts in half the time” and many other amazing claims.

But what is the reality of debt settlement?

Debt settlement is attempting to negotiate or settle a debt with a creditor in an effort to get them to take less than the amount owed. Companies are not likely to negotiate a lesser amount if you are current on your payments. They may be more interested in doing so if a consumer is past due several months.

If you call the number on the television advertisement, they inform you to stop making payments. Then they will try to “come to your rescue” by attempting to negotiate the debt down on your behalf.

It’s important to know that if the debt is legitimate, creditor aren’t required to negotiate—they can refuse to accept a settlement. Also keep in mind that if you are delinquent on your debts, you may be able to negotiate a settlement directly without paying the 10 to 25 percent of the owed amount as a fee to a third-party negotiator.

The Federal Trade Commission recommends steering clear of companies that:

• Guarantee they can remove unsecured debt;
• Promise debts can be paid off with pennies on the dollar;
• Claim their system will let you avoid bankruptcy;
• Require substantial monthly service fees;
• Tell you to stop making payments and talking to your creditors;
• Promise that using their system won’t negatively impact your credit; or
• Claim they can remove negative information from your credit report.

More information is available from the Federal Trade Commission and the National Consumer Law Center. The information on the Federal Trade Commission website can be found by visiting www.ftc.gov and searching for the publication “Fiscal Fitness.”

Keep in mind the wise saying, if it sounds too good to be true, it probably is.

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http://www.extension.umn.edu/extensionnews/2008/debtsettlement.html

Contacts: Catherine Dehdashti, (612) 625-0237, ced@umn.edu

Rosemary Heins is a family resource management educator with University of Minnesota Extension.