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Reputable Debt Consolidation

Everything You Need to Know about Reputable Debt Consolidation Companies

When searching for reputable debt consolidation companies, perhaps the first thought that comes to mind of many consumers is, “Why not find a local firm?”   The idea of dealing with a local company seems very appealing.  Who wouldn’t prefer meeting with a professional face to face to discuss their debt situation and learn how a company could potentially help them.   Unfortunately for consumers, however, many of the companies offering local, face to face consultations about your debt relief options are among the least reputable in the industry.   The purpose of this article is to educate consumers about how a recent regulation imposed by the FTC has caused many unscrupulous debt consolidation companies to start marketing their services locally as a loophole to the rule.

The FTC’s Telemarketing Sales Rule

Effective October 27, 2010, debt consolidation companies were ordered by the FTC to stop charging fees in advance to consumers.  The regulation, since it was enacted as part of the Telemarketing Sales Rule, exempts any sales of debt relief services not done over the telephone.  While many reputable companies, Franklin Debt Relief included, have opted to operate in full compliance with the rule by charging fees only after consumers see results, others have chosen to use the exemption for sales done face to face as a means to continue charging fees in advance to consumers for debt relief programs.  As a result of this, there has been a recent surge in companies now peddling free, local debt consultations, which is appealing to consumers but in reality is the worst thing they could seek out because they will have to pay up front fees if they choose to enroll in a debt relief program.

Why Paying Large Up Front Fees for Debt Relief Programs if you Don’t Have to?

The type of firms impacted most by this new rule were debt settlement companies.  Debt settlement, which is the service offered by Franklin Debt Relief, is a form of debt relief where consumers are able to pay off their debts with a lump sum for less than the balance.   Since most consumers do not have a lump sum of around half their credit card balance to offer their creditors, they instead start making payments into a savings account each month for an eventual settlement.   During this time, creditors do not receive payment and consider the debts past due.  The reason why advance fees is problematic from  a consumer’s perspective, and probably even more importantly, from a creditor’s perspective, is it delays how long it will take for a consumer to have the funds to offer as a settlement.   That is, in a program where fees are charged up front, all or part of the consumer’s payment is going towards the debt settlement companies’ fee.  In a program where fees are only collected after a debt is resolved, the payments are devoted entirely to settlement and the creditor.

What that means to a consumer is debts are settled faster, which is advantageous for a number of reasons.  Perhaps the biggest is it may help to avoid situations where a creditor become impatient about getting funds on your past due account and “forces the issue” by filing a lawsuit in court to collect it.  When this happens, it typically leads to situations where either the debt cannot be settled and must be paid off in full over a number of months (typically 24 to 60 months) or a settlement is reached but it higher than the target of 40 to 60% of the balance owed.

Perhaps the biggest incentive for consumers to choose programs where fees are only paid after a debt is settled is they only pay for results.  That means if the debt relief company does not actually resolve the account, the consumer does not pay for the service.  This provides a level of safety to consumers where their losses are limited in the event their debt relief program does not succeed.

Non Profits Can Also Charge Fees Up Front

The FTC rule also exempts bona-fide non-profit agencies that provide debt relief services, meaning they can charge fees up front regardless of whether the consultation they provide is done over the phone or in person.  The good news for consumers is most bona fide non-profits fees are nominal ($50 as a set up fee and $30-$50 per month depending on the agency and state) because their primary funding is from the credit card companies.  It is important to note, that non-profits engage in an entirely different form of debt consolidation called credit counseling.  In these plans, only interest rates are reduced, not your principal balance like in debt settlement, and even these concessions may be small (9% is typical).  Due to this fact, consumers with serious debt concerns are best considering debt settlement or bankruptcy as a solution.

To learn more about all your debt relief options, feel free to call Franklin Debt Relief for a completely free consultation at 877-274-1260.  You can also submit a form here.

To speak to a credit counselor, visit NFCC.org.

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