Debt UNsettlement Companies


Debt settlement companies provide a great opportunity to run your credit report into the ground. In loud, obnoxious advertisements, they promise to reduce your debt by 60 to 80% in a little less than half a year. But their first piece of advice is to stop paying your creditors.

If that doesn’t send a triple-bang-firework alert bursting into the sky that spells out “not smart” in big glowing letters, this definitely will: they’ll ask you to pay them instead. If your common sense isn’t offended yet, read those last four words again.

Here’s their plan: redirect your debt payments into a “special” savings account until you reach a predetermined sum. Then the company negotiates a lump-sum payment with your creditors to eliminate more debt with less cash.

Here’s what actually happens: your first payments line the pockets of your debt settlers (they charge 15-20% of your overall debt for their “services”). Meanwhile, your creditor goes unpaid and pounds you angrily with fees, late charges, and interest. Their collections department calls you often and they eventually hit you with a “wage garnishment,” which forcefully redirects a portion of your salary to them.

There are two conclusions to this scenario. Either the debt settlement company disappears with your money (Hess Kennedy, Allegro Law) or they negotiate a deal that leaves this note on your credit report: “Settled for less than full balance” (what you really want is “Paid in full”). Either way, your credit report is now a train wreck.

Do yourself a favor and cut out the (sketchy) middle man. If you can save money to put into a “special” savings account, send it to your creditors instead (monthly and on time, please). Call your creditors and ask if they have a “hardship” plan for customers in financial distress. You may be able to broker a 6- to 12-month reduction in payments and interest until you can organize your finances. If you need outside help, find a responsible consumer credit counseling company that is listed with the Better Business Bureau. Whatever you do, do NOT give your money to a debt settlement company. They should be called “debt UNsettlement companies.”

Stewart Pelto

Stewart Pelto

Stewart Pelto is a recent graduate from the University of North Carolina at Chapel Hill. He is now the proud recipient of a Master’s degree in French Literature – a degree that honed the same researching and writing skills he uses to write informative articles today. While pursuing this degree, he taught French courses to undergraduate students for two years. What he enjoyed most about the position was the challenge of making difficult concepts readily understandable and accessible to all.

He served as a Senator for the Graduate and Professional Student Federation, fighting to keep tuition costs down for graduate students struggling with their finances and student loans. He also developed his budgeting skills during his time as a Treasurer for the Graduate Romance Association. He enjoyed becoming more active in his local community and working to make a positive effect on his surroundings.

While an undergraduate himself, he spent a year abroad in Europe earning his degree in Spanish and French. While studying in both Sevilla, Spain, and Montpellier, France, he was exposed to the everyday reality of living under different economic and financial systems. Among other interesting travels he has made is a financial pilgrimage to the Spanish stock market in Madrid.

Stewart Pelto brings his rigorous academic education and his international experience to the problem of raising credit awareness and promoting financial responsibility. He hopes that his articles will teach his readers about debt and credit in an easily accessible and readily understandable way.
Stewart Pelto