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The Federal Trade Commission has issued new rules that update our July 2009 SMI newsletter story, Settle A Debt for Less than You Owe?
The Baltimore Sun provides the basics.
Companies promising to settle debts for less than you owe soon won't be able to charge for their services until they do their job.
The Federal Trade Commission...plans to outlaw advance fees charged by for-profits pitching debt relief services over the telephone beginning Oct. 27. After that, consumers won't have to pay a fee until a debt is reduced.
Also starting next month, debt settlement companies must disclose to prospective clients the cost of the program, how long it will take to get the results promised and any negative consequences of the debt relief program.
USA Today personal-finance writer Sandra Block adds more:
The rule will crack down on marketing companies that earn big commissions for signing up as many customers for debt settlement as they can, says Gerri Detweiler, personal finance expert for Credit.com. These businesses have no interest in determining whether consumers are good candidates for debt settlement, she says....
[Still,] Detweiler contends that debt settlement remains a viable option for some consumers who have large credit card debts but aren't good candidates for bankruptcy....
[T]he FTC rule provides a good guide to the kinds of questions you should ask before you [sign up with a debt-settlement company]. For example:
- What's your success rate, and what percentage of people drop out of your program?....
- How much will it cost, and how long will it take to settle my debts?....
- How much will I need to save? Debt-settlement companies typically ask you to make regular payments to a dedicated account. When a certain amount has been saved, they'll go to your creditors and offer to pay off a percentage of the debt. The rule requires debt-settlement firms to provide a reasonable estimate of the amount you'll need to save before they'll make an offer.
Despite the new rules, the advice in our 2009 article still stands: "Although debt-settlement companies have helped some debtors, this is definitely a 'let-the-buyer-beware' area."
Another point worth mentioning — FTC chairman Jon Leibowitz says that before hiring a debt-settlement firm, it's a good idea to call your creditors and explain your situation. "You can sometimes develop your own workout plan," Leibowitz says. He notes that in some cases creditors "are willing to help consumers because it's in their own best interest."
Or as Larry Burkett used to put it, "It's better to run toward your creditors than to run away from them."
Last summer, we wrote about Swaptree, a website that allows you to list and trade books, music, DVDs, and video games for free (and soon you'll able to trade Blu-ray discs and audio books). Since then, I've had a chance to use it in real life.
Here's how it works in general. Lots of individuals create lists of items they want, as well as items they have to trade. For the most part, you're saying that you're willing to trade any item on your "have" list for any item on your "want" list. (You always have the opportunity to reject a trade, but if you do this too often, Swaptree will evidently get cranky.) This is important, because in most cases Swaptree arranges deals among three parties, rather than two. In other words, you're sending an item to person A while getting an item from person B.
Here's the detailed version of how this works:
After you sign up for a free account, you are prompted to list items you have to trade and those you'd like to have. Listing items you have is quite easy. You either search for it or, better yet, simply enter in the UPC or ISBN in the "Have" list box and click "Add". From there, you select the item's condition and give a description if you'd like, then submit. Very quick and easy.
To add items to your Want List, type in the name of the item in the search box, then click the "Want It" link when it pops up. It's really that easy.
Next, you can view potential trades by clicking on your "Want List" and then sort the selections by "View Only Get Now Items." If there are any trades available to you, they will show up here. Next you can initiate a trade, assuming you are okay with the exchange. But not all items are equal. You may not want to trade a popular movie for an old paperback. But if you are good with the terms, you can initiate the trade and wait for the other party to accept (they are given roughly 2 days). If it's accepted, you'll get an email (or you can check back on the status by clicking the "My Trades").
Assuming it's accepted, you have a couple days to mail the item. Swaptree will give you the person's mailing address. You can either have Swaptree calculate and print the postage/mailing label for you right then (you'll need a credit card to pay for the postage if you select this option and they charge a small fee for this service - but it's extremely convenient and the prices are quite reasonable), or you can calculate your own postage.
After you mail it, you can "Contact the user" to notify them of your ship date and/or ask them questions/make comments. Once you've received your item, you can come back to "Rate the User". This rating might make a difference with whom you trade in the future. Since other users also likely take notice, it's advisable to solicit positive feedback if they haven't already rated you.
And that's Swaptree in a nutshell. We recently moved and came across some old movies and video games that I had intended to sell on eBay. But since I didn't want to hassle with auctions, and there were some DVDs we wanted, I thought I'd give Swaptree a try. And it works as advertised. I'm notified when someone initiates a trade and I check back once a week to see if there any available trades I may have missed or if I want to add some items to our Want List. So far, I've made 4 trades (traded movies for movies and traded video games for movies) and haven't had any issues. The only fees I've paid were the shipping costs. Again, Swaptree makes a small profit when you buy and print postage but you don't have to use their postage generator.
If there's a downside to Swaptree, it's that pending the size of your Want and Have Lists, a trade could take a while. So if you're in a rush, this probably isn't your best option. But it will likely be on my pre-eBay checklist if there's an book, movie, CD, or video game I'm interested in getting. And it sure beats paying retail because as is often the case, patience pays dividends for the frugal.
UPDATE: Swaptree has acquired Swap.com. Besides an eventual name change and a bigger user base, the changes brought about by this acquisition will take some time to manifest. In the meantime, it's free trading as usual.
Wanna get out of debt? Start by looking at your biggest expenses and find ways to reduce or eliminate them. For many of us, that biggest expense is our mortgage.
But not for 45-year-old Jay Shafer of Sebastopol, California. Why? Cause Jay has taken downsizing to a whole other level. Jay lives in an 89-square-foot house he designed and named "Tumbleweed." Jay, a former grocery store clerk, now designs these houses for a living. And not only has his mortgage disappeared, his utilities are now under $100 a year. Here's his story:
To be honest, this lifestyle appeals a great deal to me. Not only because of vastly reduced expenses, but also because of the burden of choosing, maintaining, replacing, cleaning, and storing our "stuff."
That said, I wouldn't go near this lifestyle till we're empty nesters because of the following equation:
5 humans + 1 dog + 86 square feet = (Matthew - sanity) + psychiatrist bills + restraining orders
And even once the kids leave home, really, let's be honest, what's the likelihood?
A year ago, in an article titled Settle A Debt for Less than You Owe?, we looked at so-called debt settlement companies, noting that (to put it charitably) they tend to over-promise and under-deliver.
[R]eaching a debt settlement isn't quite as easy as [these companies'] ads imply. A settlement works only if you qualify and only if everything goes just right....
[I]f things go wrong, the debtor could end up with more debt, an angry creditor, a severely damaged credit score, perhaps a lawsuit — plus be out hundreds (maybe thousands) of dollars in fees.
We also warned that "this is definitely a 'let-the-buyer-beware' area. The field of debt settlement is replete with firms that appear to be little more than scams."
On Saturday (June 19), the New York Times published a helpful (though somewhat heavy-handed) front-page follow-up.
[Debt] settlement companies typically harvest fees reaching 15 to 20 percent of the credit card balances carried by their customers, and they tend to collect upfront, regardless of whether a customer's debt is actually reduced.
State attorneys general from New York to California and consumer watchdogs like the Better Business Bureau say the industry's proceeds come at the direct expense of financially troubled Americans who are being fleeced of their last dollars with dubious promises.
Consumers rarely emerge from debt settlement programs with their credit card balances eliminated, these critics say, and many wind up worse off, with severely damaged credit, ceaseless threats from collection agents and lawsuits from creditors....
In the typical arrangement, the companies direct consumers to set up special accounts and stock them with monthly deposits while skipping their credit card payments. Once balances reach sufficient size, negotiators strike lump-sum settlements with credit card companies that can cut debts in half. The programs generally last two to three years.
"What they don't tell their customers is when you stop sending the money, creditors get angry," said Andrew G. Pizor, a staff lawyer at the National Consumer Law Center. "Collection agents call. Sometimes they sue. People think they're settling their problems and getting some relief, and lo and behold they get slammed with a lawsuit."...
In April, the United States Government Accountability Office released a report drawing on undercover agents who posed as prospective customers at 20 debt settlement companies. According to the report, 17 of the 20 firms advised clients to stop paying their credit card bills. Some companies marketed their programs as if they had the imprimatur of the federal government, with one advertising itself as a "national debt relief stimulus plan."...
"The vast majority of companies provided fraudulent and deceptive information," said Gregory D. Kutz, managing director of forensic audits and special investigations at the G.A.O. in testimony before the Senate Commerce Committee during an April hearing.
The Federal Trade Commission is expected to release new rules (PDF) this summer aimed at curbing abuses in the debt settlement industry. In addition, several states may act to cap fees that debt settlement companies charge.
As we noted in Settle A Debt for Less than You Owe?, a more fruitful approach for those struggling with significant debt problems is to work with a nonprofit credit-counseling agency to set up a debt-management plan (DMP). A DMP helps consumers pay their debts (in full) over 36-60 months.
DebtAdvice.org, the website of the National Foundation for Credit Counseling, offers a searchable database of such counseling agencies.
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