Avoid deceptive debt-settlement companies

By Jen Haley, producer


NEW YORK (CNN) -- The Better Business Bureau is out with a new warning: beware of some debt settlement companies.

It's not only the Better Business Bureau sounding this alarm. The Government Accountability Office just came out with the results of an undercover investigation of the industry. It found that some debt-settlement companies engaged in fraudulent, deceptive and abusive practices. And just last week, new legislation was proposed by Sen. Schumer, D-N.Y., and Sen. McCaskill,D- Mo., on regulating this industry.

Not all debt-settlement companies are out to deceive you. But there are some rogue firms that claim they can negotiate a settlement with your creditors for less than what you owe ... after you pay an up front fee of as much as 20% of your total debt.

How it works

The debt-settlement company sets up an account where you deposit money. The money is used to pay for negotiated settlements. Now, it usually takes six months to a year before there's enough money to start settling accounts. And during this time, you won't be making payments to creditors. And that's where you can get into trouble.

You risk piling up more interest and penalty charges and you could be dragged into court by your creditors. Your wages can be garnished and your credit score will take a huge hit.

Warning signs

Here are some red flags to look out for: First, high up front fees. That should set off alarm bells.

Don't trust promises that your debt can be cut in half. And finally, don't be swayed by claims that debt settlement is a fast, easy and painless process. It's anything but easy.

Despite pressure in Washington to regulate this fast-growing industry, right now, states are largely responsible for policing it.

If you are really set on working with a debt-settlement company, make sure to check them out with the Better Business Bureau.

A better move is to try calling your creditors directly. That's free and something you can do on your own.

Or, go to a legitimate credit counseling service that can help you work out a payment plan with creditors. Generally you'll pay $25 to enroll and monthly fees that don't exceed $50. Check out NFCC.org. To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Overnight Avg Rate Latest Change Last Week
30 yr fixed3.98%3.95%
15 yr fixed3.05%3.05%
5/1 ARM3.32%3.71%
30 yr refi4.05%4.03%
15 yr refi3.12%3.11%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
Index Last Change % Change
Dow 16,805.41 127.51 0.76%
Nasdaq 4,483.72 30.92 0.69%
S&P 500 1,964.58 13.76 0.71%
Treasuries 2.27 -0.00 -0.09%
Data as of 5:28pm ET
Company Price Change % Change
Ford Motor Co 13.78 -0.62 -4.31%
Microsoft Corp 46.13 1.11 2.47%
Apple Inc 105.22 0.39 0.37%
Bank of America Corp... 16.72 0.12 0.72%
Yahoo! Inc 43.50 0.90 2.11%
Data as of Oct 24

Sections

New York headlines took a straight forward and direct approach with NYC's Ebola news. More

The midterm elections are around the corner, and the economy remains a top concern. With unemployment down and inflation low, why do people still feel the economy stinks? More

Shares of Facebook recently topped $80. They've more than quadrupled from their post-IPO lows of two years ago. Can Mark Zuckerberg keep the momentum in mobile going? More

Host a furniture market. Here's how small town High Point, N.C. rakes in this much money -- twice a year. More

If you're looking to fly this holiday season, the clock's ticking to get the best prices. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.