An Experian study showed that the average FICO score for US credit cardholders in 2019 was 727, which credit experts consider as good. Moreover, contrary to popular belief however, credit card debt isn’talways the product of irresponsible spending.Contributing factors include unexpected medical costs as well as home and auto repairs. Further, many people are having financial problems in the wake of the COVID-19 pandemic.
If you’re one of them, here is some advice from the Federal Trade Commission (FTC) on settling credit card debt.
FTC Rules on Settling Credit Card Debt
If you decide to make deliberate efforts to restore your financial stability following substantial credit card debt, ensure that you check out the FTC rules on settling credit card debt.
Debt settlement programs, usually coordinated by privately owned companies, often involve the company negotiating on your behalf with the creditor in pursuit of a settlement solution to your debt. In that context, the FTC implemented a few rules to protect the interests of Americans that would like to find relief with a debt settlement .
Implemented in 2010, the FTC’s Final Rule decreed that customers shouldn’t pay an advance fee when finding relief with a debt settlement service. According to the agency’s stipulations, the company should only receive payment when a written agreement between the customer and creditor has been reached or when there’s a notable change in the client’s debt obligations.
Additionally, the Final Rule stipulates customers should deposit fees in a dedicated savings account to foresee their debt settlement plans. However, the FTC insists that the account must be opened at an insured financial organization and be fully owned by the customer, including the accumulating interest.
The agency also stipulates that the client can withdraw the funds without consequences and the creditor shouldn’t be in any way associated with the financial service company.
The rules also require customers be fully informed of the financial and program details. These disclosures should be made before the customer has enrolled in the program. The company must tell the potential client how much the process will cost; the applicable refund policies, the possible effect on credit scores and disclose potential tax implications. During this time, it should offer a timeline for when the consumer should expect results.
Debt Settlement Scams Worth Noting
Since the FTC’s main agenda lies within protecting the interests of consumers, it also warns of several debt settlement scams worth noting. Financial experts from the agency advise customers to avoid working with companies that request fees before settling the debt or claim to use a government program to help settle credit card debt.
On the same note, they also warn against collaborating with companies that guarantee to clear unsecured debts, especially those that promise to do it for cheap. The FTC also shuns companies that advise you to cut off communication with your creditors without explaining the possible implications and those that tell you that they can put an end to all debt collection calls and lawsuits.
Choosing the Right Debt Settlement Company
Besides the FTC rules on settling credit card debt and the debt settlement scams worth noting, the agency also has a few tips that can assist in choosing the right debt settlement company. Its credit professionals believe that a good company should disclose all programs and costs before you sign up, send resolution offers to you for approval, and give a timeline of when you can expect results.