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Robert Longley

FTC Tips and Warnings on Settling Credit Card Debt

By April 14, 2010

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People who have maxed out their credit cards and now see no hope of ever paying them off might appreciate some great tips on settling credit card debt and sound warnings about companies that guarantee they can "erase your debt for pennies on the dollar" from the Federal Trade Commission (FTC).

In its new publication Settling Your Credit Card Debts, the FTC says that there is no guarantee that debt settlement companies can persuade a credit card company to accept partial payment of a legitimate debt. Even if they can, clients must put aside money for their creditors each month and may have to pay hefty fees up front to the debt settlement company, thus putting them further in the hole before they get any relief.

Warnings About Debt Settlement Companies: The FTC warns consumers to avoid any credit card debt settlement company that:

  • use a "new government program" to bail you out of personal credit card debt (There are no government programs or grants to help pay off personal debt.)
  • guarantees it can make your unsecured debt go away
  • tells you to stop communicating with your creditors
  • tells you it can stop all debt collection calls and lawsuits
  • guarantees that your unsecured debts can be paid off for pennies on the dollar
  • requires that you pay the full fee for its services within the first few months

Tips for When You're Just Too in Debt: The FTC suggests that rather than running the risks of dealing with a debt settlement company, consumers who have maxed-out their credit cards consider:

  • Contact your credit card company: Just call the number shown on your statement. "Your goal is to try to work out a modified payment plan that reduces your payments to a level you can manage." The FTC recommends that even if you've tried this before and failed, keep trying. "If at first you don't succeed, be persistent. Keep good records so that when you do reach them, you can explain your situation." Why pay somebody to do what you can do yourself?
  • Contact a credit counselor: "Reputable credit counseling organizations advise people on managing money, bills and debts, help them develop a budget, and usually offer free information and workshops." Federal law requires credit card companies to show a toll-free phone number on their statements that will help consumers find nonprofit credit counseling agencies. In addition, About Guide to Credit/Debt Management LaToya Irby offers plenty of free advice on using credit cards, reducing debt and debt management solutions.
  • Consider filing for bankruptcy: "Declaring bankruptcy has serious consequences, including lowering your credit score, but credit counselors and other experts say that in some cases, it may make the most sense." The FTC recommends filing a Chapter 13 bankruptcy. "Filing under Chapter 13 allows people with a steady income to keep property, like a mortgaged house or a car, that they might otherwise lose through the Chapter 7 bankruptcy process."

Also See:
FTC Warning on Credit Card Loss Protection Scams
Obama Signs Credit Card Reform Law
Seven Tricks To Stop Using Your Credit Cards (Credit/Debt)

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