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Love and Debt: Why you need to talk about money

How to Stop Living Paycheck to Paycheck

Where to go for mortgage and debt help

What You Should Know About Debt Settlement

Create a plan to deal with medical debt

Options for Higher Education

Will Changes in Credit Reporting Affect You?

What to do if your medical bills are turned over to collections

What to do if your spouse can't pay his or her bills

What to do when a family member ruins your credit

Homeownership is possible

What you need to know about the IRS and collection agencies

Will being turned down for a store credit card hurt my credit?

Beware of credit repair

Debt Management versus Debt Settlement

How to get ahead of late fees

Is There a Service That Helps You Not Pay Bills

Is a Debt Owed

Patience is the key to furnishing a new home

How to split expenses with your partner

Will my boyfriend's bad credit affect me?

What to do if your account is turned over to collections

Personal Credit and Starting a Business

Finding Money to Reduce Your Debt and Improve Your Credit

Simple Keys to Personal Finance

Be vigilant to avoid telephone and internet scams

Debt Settlement

Understanding credit utilization

The pros and cons of skipping a payment

Keep an open line of communication with parents about their finances.

Make a Choice to Get Ahead Financially

What to do when a relative asks you for money

Should You Buy a Home Now or Wait?

The difference between debt settlement and debt management

The negative impact of paying a payment 30 days late

Stressed by Finances

How to navigate two significant financial decisions: starting a family and buying a home

How to advise someone close to you who is coming into a significant amount of money

Make a Conscious Decision on How to Spend Your Money

How do you know if you have a good credit score?

Americans spend more money eating out than on groceries

Having Good Credit Saves You Money

Developing good money habits with your first job

How to save for a home

How to Know if you are Ready for Home Ownership

When is the right time to buy a home?

You can improve your credit to buy a home

Plan a Memorable Vacation Without Incurring Debt

The Hidden Costs of Payday Loans

Be Wary of Credit Repair Services

Use Caution when playing the credit card game

What does it mean to say bankruptcy gives you a clean slate?

How your credit is affected by various debt options

Be wary of predatory small business loans

What to do if you fall behind on mortgage payments

Financing a College Education

Money, Credit and Relationships

Should you be concerned with your date's credit scores?

Best options for a small, short-term loan

How to help a relative who is always borrowing money from you

Skipping a Payment over the Holidays

What to do if you are overwhelmed by medical bills

Make your financial intention a financial goal you can achieve

What to do when a collector calls you

The difference between paying bills and managing your money

My wife and I have gone through some tough financial times, which eventually led us to file for bankruptcy.  Following this experience, I don’t ever want to use credit again, but my wife

What do I need to know to pay ahead on my mortgage?

What to do if you get an unsolicited credit card in the mail

What to do when moving in to share expenses doesn't work out

Debt Settlement

Q. My coworker enrolled in a debt relief program where the company was supposed to negotiate her debt down to 50%.  But she said none of her payments are going to her creditors, and now she’s being sued.   Is this service legal?  What can my co-worker do now?

A. Yes, this kind of debt relief service is completely legal.  What you described is known as debt settlement.  In this kind of agreement, a company promises to reduce your debt by 50% by offering your creditors settlements.  Unfortunately, many consumers don’t understand how the process works.

When you sign up for a debt settlement service, you send monthly payments to the debt settlement company, but they do not forward your payments to your creditors.  Instead, they hold your money in an account until you have enough money to offer a single creditor a settlement.  Depending on the size of your debts, it can take months for just one creditor to be offered a settlement.

Because your creditors are not being paid monthly, you go further delinquent.  And because they are not receiving payments, your creditors will charge you late fees and interest, consequently raising your balance. In the meantime, your credit report is negatively impacted when you do not make monthly payments. 

Once you have enough money to make a settlement, the debt settlement company pays the creditor.  Even after a creditor gets paid, however, you will still suffer the ripple effects of debt settlement. You will already have paid a fee for the debt settlement company to pay your creditor, but then the IRS will tax you on the amount of forgiven debt. The payment will show up on your credit report as a settlement, which negatively influences your credit score.  And to make matters worse, those creditors that have not received any payments may opt to sue you since you have not paid them. 

The Consumer Financial Protection Bureau (CFPB) releases a monthly snapshot detailing consumer complaints that pertain to financial services.  The November 2016 report revealed that debt settlement received more complaints than any “other financial services”, including check cashing, credit repair and money orders.  In fact, problems with debt settlement companies made up 50% of the complaints submitted to the CFPB.

I would suggest that your friend review her debt settlement paperwork so that she can find out how much of her money can be refunded to her.  If she cannot find her paperwork, she should call the debt settlement company and ask them to send or email her a copy.  She needs to find the cancellation clause in the paperwork and follow it.  

If your friend still needs legitimate debt help (and she probably will after using a debt settlement service,) she should contact a non-profit accredited credit counseling agency.

Bonnie Spain is the executive director of the American Center for Credit Education and Consumer Credit Counseling Service of the Black Hills. For more information, email

The material in this transmission is provided for personal, non-commercial, educational, and informational purposes only. ACCE makes no representations or warranties with respect to the accuracy or completeness of the contents of this transmission and assumes no responsibility for errors, inaccuracies, omissions, or any inconsistency herein. You should consult a professional where appropriate.