Debt consolidation companies under attack?

The debt help industry is doing brisk business and helping out debtors but it is also receiving a lot of criticism as state attorney generals, regulators, the Federal Trade Commission and above all consumers are suspecting foul play in the manner in which the debt relief companies are operating. Lately, the debt consolidation companies as well as debt settlement companies have come under scrutiny.

Reports suggest that as far as debt settlement industry is concerned, a bill AB350 has been passed that will henceforth regulate the debt settlement companies. Studies reveal that in many states, debt relief activities are regulated. There are few states where pending bills related to debt settlement are waiting to be passed.

One of the common complaints against the debt consolidation companies is that they charge very high upfront fees and take additional fees every month for negotiating with creditors. Majority of the companies take their fees before delivering what they promise. This is very much disturbing as instances of dropouts are not uncommon. So, if a debtor who has enrolled for a debt consolidation program drops out, he will be losing his entire cash without getting what he was promised. This will worsen matters for him because he will be losing money when he needs it the most.

Is the money debtors spend on a debt consolidation program worth it?
A section of debtors think that debt consolidation only “reorganizes” debts to a certain extent. When a debtor enrolls for a debt consolidation program, a repayment plan is worked out taking into consideration the other financial obligations of the debtor and his repayment capacity. However, if the debtor has to shell out cash for an unforeseen event that drains out a considerable amount of cash, he is left in the same position from where he started. This is why many debtors are reluctant to enroll for a debt consolidation program and prefer a debt settlement program instead where the outstanding balance of the debt is reduced.

However, if all debt consolidation companies were unreliable, the debt consolidation industry or the debt help industry for that matter wouldn’t have been flourishing the way it is today. In fact the Better Business Bureau urges consumers to develop awareness of the debt help option they are enrolling for. By doing so, it will be difficult for the unreliable debt consolidation or debt help companies to take debtors for a ride. Ignorance isn’t bliss always!

Contributed by Debt Community Member.

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