There are a wide range of companies that deal in debt settlements, and their legitimacy ranges just as far.
Not only do many attorneys specialize in debt settlement and offer free consultations, but there are also certain nonprofits that handle debt settlements for qualified consumers in their area service. While you might assume such debt settlement professionals to be effective and trustworthy (and they often are), that's certainly not a foregone conclusion.
"I would counsel consumers to be wary of even non-profit debt settlement entities even though the non-profit label can make such entities appear to be a safe harbor for the financially and emotionally distressed consumer," Alexandra P. Everhart Sickler, an assistant professor of law at the University of North Dakota School of Law, told CardHub. "Remember, these entities have overhead costs, including salaries. They need the 'donation fees' consumers pay in exchange for debt settlement services in order to operate, so they are equally motivated to bring in as many consumers as possible."
With that said, consumers must be even more diligent when dealing with a for-profit debt settlement company or credit "repair" service (the ones that typically advertise the most). A good portion of these companies are known to be scams, and even those that are considered somewhat reputable won't be able to do anything for you until you've defaulted.
"Occasionally they may provide added value to the debtor's situation over and beyond what they charge (always keep an eye on this value of services consideration), but if the debtor wants to use one of these services, I certainly would advise him to select one only from the United States Trustee's list of approved counseling companies," says Steven A. Schwaber, a Los Angeles-area bankruptcy attorney. "The field is rife with such settlement companies that are merely shills or front organizations for the credit industry and do not have either the debtor's interests or even fairness at heart."
That's especially important to note because many debt settlement services will charge hefty fees for their attractive promises, only to sit on the payment that you give them until your credit is ruined before even beginning negotiations with your creditor – if they ever actually do so. It's therefore usually best to avoid debt settlement companies entirely.
"As a consumer advocate, my perspective is that the bad apples in the for-profit debt settlement industry still greatly predominate over those offering good service at a fair price," Gary Klein, partner at the Boston-based consumer law firm Klein, Kavanagh & Costello, told CardHub. "The risk of overpaying for services that don't pan out so far outweighs the potential for advantageous debt settlements, that consumers should avoid for-profit debt settlement services at all costs."
As a result, many consumers choose to effectively serve as their own debt settlement companies, opting for a DIY debt settlement. This is a great option, provided that you do the requisite research and are able to remain both objective and civil when dealing with your creditor.
CardHub.com is a credit card comparison website owned and operated by Evolution Finance, Inc., a personal finance company founded in 2008 and based in Arlington, Virginia. It serves primarily as an online credit card marketplace, but it also frequently conducts and publishes studies and reports about many aspects of the credit card industry. CardHub.com reporters regularly solicit comments from scholars in the fields of law, business, economics, and sociology to comment on relevant news items. Among the legal scholars whose comments have beenQuote included in CardHub.com articles are professors from the University of Virginia School of Law and the University of New Mexico School of Law.