Public Employee Press

Debt Settlement: BEWARE

Debt settlement companies advertise that they can reduce your credit card or other debts. They claim that if you deposit money with them monthly over a period of time, they will be able to settle your debts later on for a reduced, lump-sum amount. These companies are increasingly operating in New York City offices and storefronts.

DC 37's Municipal Employees Legal Services warns members that settlement companies collect their fees upfront, so your first several months of payments will just be paying the fees. (And the fees are high - typically 15 percent or more of the total debt owed, plus a monthly transaction fee.) During that time, debt collectors will be calling you, you may be sued, and late fees will continue. The end result is that what you owe may go up, not down.

If you are already paying a debt settlement company, immediately take stock of your situation. Unless the company is settling your debts as it promised (unlikely), stop paying, demand a refund of what you have paid, and file a complaint with the State Attorney General, City Dept. of Consumer Affairs and the Federal Trade Commission.

Debt consolidation is similar to debt management. Do not enter into debt consolidation without getting independent professional advice, including financial and budget counseling, prioritizing your debts and deciding which ones to pay first, defending against any pending lawsuits, or filing bankruptcy.

• If you are a DC 37 MELS-eligible city employee or retiree, call the MELS Screening Unit at 212-815-1111 to arrange for legal advice.
• You may also obtain free one-on-one financial counseling at a New York City Financial Empowerment Center. Call 311 or visit nyc.gov/ProtectYourMoney.