Are debt settlement companies scams? Consider the following quote...
Now, I realize that without attributing this quote to anyone it does not carry any weight whatsoever. But, what if I were to tell you that this is a direct quote from none other than the Chairman of the FTC (Federal Trade Commission)? Would that give the quote more meaning? I thought so.
But even still, it is one person's opinion. A very important person's opinion mind you, but his opinion on its own does not answer the question you are trying to get answered.
First of all, just because you are in debt does not mean that you are a prime candidate for a debt negotiation program. (The terms debt settlement and debt negotiation are often used interchangeably.) In fact, a good rule of thumb for determining whether someone should consider settling their debts is to determine whether they would be a candidate for bankruptcy. In other words, if you are considering bankruptcy, then you should look at debt settlement as an alternative.
Sometimes filing bankruptcy is the best option. But, with the change to the bankruptcy laws that took place a few years back, it is much more difficult to wipe your "debt slate" clean through this process. Many people do not qualify for Chapter 7 bankruptcy (which eliminates your existing debt), but instead must file Chapter 13 bankruptcy which obligates them to pay back a portion of their debts over 3 to 5 years. Faced with having to pay back these debts even if they file bankruptcy, many of those people look to negotiate reductions in their debts with their creditors.
Let's get back to your original question ("Are debt settlement companies scams?") for a moment. In the sense that these companies offer a viable alternative (and in many instances a better alternative) to bankruptcy, no, they are not scams. In fact debt settlement is often referred to as the "new" bankruptcy.
One of the problems with answering a question like "Are debt settlement companies scams?" is that any one word answer (yes/no) implies that all of these type of companies are either reputable or not. And of course the reality is that some companies are reputable, and some are not.
As I mentioned earlier, not everyone's financial/debt situation lends itself to a settlement solution. And one of the biggest "scams" perpetrated by less than reputable settlement firms is convincing people who should never being trying to settle their debts in the first place, that this type of program is right for them. So how do you protect yourself?
You must educate yourself not only about debt settlement, but all of your debt options. (Here's a good place to start if you are looking to learn more about all of your debt relief options.) You must also realize that other than Chapter 7 bankruptcy, every other debt relief program will require a tremendous amount of discipline and work on your part. Don't be deceived into thinking that some debt company is going to do all the "heavy lifting" for you. They're not.
My final thought on this is, no, they are not "scams" and do serve as a valuable alternative to bankruptcy for many people. having said that however, anyone who is considering this route should at the very least speak to a bankruptcy attorney prior to signing on. There may be things that an attorney can point out about your situation that a debt settlement company cannot.