BBB on Differences Between Debt Consolidation, Debt Negotiation and Debt Elimination Plans
Central Alabama – March 5, 2009 - Consumers are being battered on all fronts and offers from companies to help get them out of debt are extremely tempting in troubling times. Offers of debt negotiation, debt settlement, and debt elimination are three different options available to consumers. Better Business Bureau advises consumers to ensure they understand these critical differences before enlisting the help of a company to manage their debt or they could end up making their current financial situation worse.
The unemployment rate in the US rose from 7.2 to 7.6 percent in January according to the U.S. Department of Labor and more families are struggling to make ends meet. While the unemployment rate continues to rise, so do complaints filed with BBB against companies that claim to help consumers manage their debt. In fact complaints against debt consolidation and negotiation companies rose by almost 19 percent in 2008 over the previous year.
“Consumers are bombarded every day with ads and e-mails offering services to manage or reduce debt and it’s hard to know which offer will work for them, let alone if the company can be trusted,” said David Smitherman, BBB President/CEO. “Families in debt may think their situation can’t get any worse, but trusting the services of some debt negotiation, consolidation or elimination firms can actually lead to increased debt and bigger headaches.”
To help consumers understand various options for dealing with debt, BBB offers a brief explanation of debt negotiation, consolidation and elimination services and tips on finding help to deal with debt:
Debt negotiation companies claim that they will negotiate with a consumer’s lenders to lower the total amount of debt owed for an upfront fee. Unfortunately, some consumers who paid for debt negotiation services found out that the company never contacted their lenders, but instead, took their money and ran. Because the debt negotiation company made it sound like they had everything under control, the consumer stopped talking directly with their lenders and ended up slipping deeper into debt. Relying on debt negotiation firms could also put a dent in a consumer’s credit report.
Debt consolidation companies offer to roll up various debts allowing the debtor to make one lower payment to the company, rather than many payments to the different lenders. While debt consolidation can make paying monthly bills more manageable, some companies tack on high fees and charge exorbitant interest rates, which means the consumer is paying much more in the long run.
Companies that offer debt elimination rely on many different schemes but they all hinge on the notion that credit lines are illegal. Debt elimination companies typically provide, for an upfront fee, a document for the lender that supposedly absolves the consumer of the debt. Unfortunately, the document has no bearing whatsoever on the debt owed and consumers paying for such services have found that they’ve wasted money on a debt elimination scheme that would have been better spent on actually paying back their debts.
Before enlisting the help of a business to manage debt, BBB offers the following advice for consumers.
For more advice on dealing with debt including how to manage a budget, go to www.bbb.org.
About BBB Serving Central Alabama & the Wiregrass:
BBB is an unbiased non-profit organization that sets and upholds high standards for fair and honest business behavior. Businesses that earn BBB accreditation contractually agree and adhere to the organization’s high standards of ethical business behavior. Incorporated locally in 1955, today your BBB services 41 counties in Central Alabama, supported by over 4,000 Accredited Businesses. BBB provides objective advice, free business BBB Reliability ReportsTM and charity BBB Wise Giving ReportsTM, and educational information on topics affecting marketplace trust. To further promote trust, BBB also offers complaint and dispute resolution support for consumers and businesses when there is difference in viewpoints. The first BBB was founded in 1912. Today, 125 BBBs serve communities across the U.S. and Canada, evaluating and monitoring nearly 4 million local and national businesses and charities. Please visit www.bbb.org for more information about BBB.