During these tough economic times, you might be falling into credit card debt. And to get out of it, some consumers turn to debt settlement companies. These companies promise to negotiate with your creditors, so you can pay off your debt for less than what you owe. But the NBC4 I-Team learned these programs may not always give you what they promise.
Crystal Dossett lost her job a few years back, so she relied on credit cards to get by. But when the bills got to be too much, she turned to a debt settlement company called Macklock to help.
“OK, we finally did something right,” recalled Dossett. “We’re moving forward, we’re not stuck in this debt hole.”
Here’s how Dossett said Macklock told her the program worked: She would stop paying her credit card bills, even let them go to collections; she’d make a monthly payment to Macklock instead; when the company collected enough money from Dossett, it would start paying off her creditors, at a negotiated, reduced amount. Dossett said after two years in the program, Macklock told her all her creditors had been paid.
“Everything was done, we did our job,” said Dossett.
But recently, Dossett said an old credit card company dinged her credit, saying it wrote off an unpaid debt – one Macklock was supposed to pay, but apparently never did.
“It stung, it hurt, it’s a lesson learned,” said Dossett.
The I-Team learned Dossett’s not alone. Other consumers have complained to the Better Business Bureau about Macklock, saying the company didn’t pay creditors it was supposed to, and now those creditors are garnishing their wages and suing them.
In an online response to the BBB about these complaints, Macklock denied it did anything wrong. The I-Team wanted to ask more questions about these complaints, but the company didn’t return our phone calls.
Sara Rathner with the personal finance site NerdWallet thinks consumers should avoid debt settlement companies. She said your debt will likely only grow while you’re working with these companies, and your credit score takes a beating.
“The bills don’t stop just because you’re in negotiation mode,” said Rathner. “They’re still coming, and you’re still not paying them. Which means you’re subject to things like late fees, your debts are starting to go into collection. This can have a detrimental effect on your credit score.”
Rathner said you can negotiate with your creditors all on your own. But if you do want help, she suggests finding a nonprofit credit counseling agency. They can help you hammer out payment plans with your creditors, while working within your budget.
“It can provide you with a lot of power in a situation you might feel quite powerless,” said Rathner.
It’s all advice Dossett wishes she’d heard long ago.
“I just don’t want anyone else to go through this because it does suck when you think you’re doing so well again and you just get kicked down,” she said.
Rathner says you can also consolidate your debt with a personal loan or low interest credit card. And for some, wiping out debt altogether, through bankruptcy, might be the best option. You’ll want to talk to an attorney for that.
