Tulsa World, Okla., Phil Mulkins column: Debt settlement never easy, but often a problem

Nov 08, 2009 (Tulsa World - McClatchy-Tribune Information Services via COMTEX) -- RATE | Quote | Chart | News | PowerRating -- Dear Action Line: I take home $9,000 per month, but pay $2,500 to my credit cards. I can't continue paying the credit card bills and am thinking about trying to "settle" these. Will it hurt me that I have gainful employment? -- D.S., Tulsa.

Bankrate.com's Debt Adviser, Steve Bucci, president of Money Management International Financial Education Foundation (tulsaworld.com/BANKSteveBucci), says of course you can pay your credit card bills. You just have to put $3,000 on them instead of that measly $2,500. At $9,000 a month, you're knocking down $108,000 a year -- an amount any creditor would love. You should work on the real problem: your out-of-control spending.

Don't believe late-night cable: It is doubtful any creditor would settle your account for less than you owe when you have a good source of income to pursue in court for garnishment and swell assets the same court can attach. A lot of misleading ads fly by night on the Internet, specifically late-night cable, giving insomniacs the erroneous notion they can "just settle debts and walk away scot-free." You can't.

Some debt settlement companies (tulsaworld.com/BANKdebtsettlement) will say you have the right to settle debts for less than you owe, as if you qualify for some new government entitlement that you need only apply for. Debt settlement is a bad idea on many levels as it rarely ever works.

Even if you had no income or assets, which you do, your lenders would want lump sums of 60 percent very quickly, which you apparently don't have.

Settle NOT: Your best option is cutting back on spending and paying in full. Hire a lawyer instead of a settlement firm as creditors are not willing to settle for less than the total due unless the account is at least 90 days past due. They won't sit back as you stop paying. Many contact attempts will be made, becoming more aggressive over time. Creditors don't settle quietly. They employ an army of collectors, lawyers and bad-debt buyers who are good at getting the money you owe.

Ruined credit: Settling can not only ruin your credit, it can increase your insurance rates and keep you from getting a promotion or a new job. It will prevent your accessing credit for a car, home or apartment.

Alternatives to settling: If a review of your spending habits doesn't suggest an obvious way to pay off your debts, hire a local attorney to negotiate with your creditors or seek a debt management plan through the Credit Counseling Centers of Oklahoma (see the May 13 Consumer Page at tulsaworld.com/Consumer051309). Hiring an attorney is expensive but will be cheaper than being conned by a debt settlement firm.

Read up on paying off debt with home equity at tulsaworld.com/BANKhomeequity. Don't tap your retirement fund for everyday debt -- tulsaworld.com/BANKretirementfund.

Submit Action Line questions by calling 699-8888 or by e-mailing phil.mulkins@TulsaWorld.com or by mailing it to Tulsa World Action Line, PO Box 1770, Tulsa OK 74102-1770.

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