Working with clients who fall into debt traps has made me cautious about using credit cards. That’s an understatement. I’m paranoid when it comes to debt. I pay off all personal and business credit card debts in full and never carry a balance.  In fact, I pay the accounts weekly so I don’t carry a balance on my credit report.  (That actually helps boost a credit score.)

So, I was surprised when the folks at the Debt Reduction Center sent me this advertisement letter.

Debt Reduction Center Letter

How this company estimated that I might owe $25,000 of creditor balances is beyond me, but I’m sure it has something to do with what I could owe if I decided to maximize my lines of credit. However, as I said before, I don’t carry a balance and I never pay late, so it was surprising to get the letter.

I can only assume that everyone in America with a credit card is getting these letters, whether or not they are experiencing debt problems.

But even if I was $25,000 in credit card debt, is it really true that I could settle my way out of the problem for only $375 per month over 36 months?  Gosh, that seems hard to believe.  To pay off $25,000 of credit card debt with an average interest rate of 19% would require a $916 payment over 37 months.  I can see where many folks would find this offer attractive.

Will this settlement plan actually work?  Can you settle $25,000 of debt for $375 per month over 36 months?  In my professional opinion, not a chance!


  • You don’t have 36 months to settle debts.  These programs require that you stop paying the credit card account and start paying into their settlement escrow account. After 6 to 12 months of no payments, banks file collection lawsuits or they sell the accounts to aggressive junk debt buyers.
  • Settlement Fees:  Debt settlement companies typically charge a 15% to 20% settlement fee, so not only do you have to save up for the settlement but you need to save up to pay the settlement fees.
  • Accruing Penalties & Fees:  While you are paying money into the debt settlement escrow account, interest and penalties are racking up on the debt.  So even if you settle the debt for 50 cents on the dollar, you are settling a higher account balance.
  • Tax ConsequensesWhen credit card companies settle debts they usually issue a 1099-C tax form to the IRS to report what you did not pay. That can result in additional income taxes you must pay.
  • Garnishments:   When the banks obtain judgments they may garnish up to 25% of your paycheck.  That’s commonly when I meet new customers–when their paychecks get garnished and it becomes painfully obvious that the debt settlement program has failed.



You will never find a debt settlement company that publishes its success rate.   There is no standard for measuring success, no auditing of cases, no public records available to audit, and no public reporting requirement at all.  It is commonly believed that the success rate of debt settlement is below 10%.  Some have said the success rate is as low as 1%.

Jeff Meeks, a former Vice President of Recovery Operations for WaMu Card Services, had this to say about the debt settlement industry:

I have had numerous DSC’s admit they have no intention of settling debt and in fact it is counter productive to their purpose to do so; their main purpose being to enroll consumers, collect fees, and provide such poor customer service and results that most consumers drop from the program and thereby leave the DSC with thousands of dollars in unearned benefit.

The Federal Trade Commission has also written a great article warning consumers about the risks of debt settlement. An important FTC study showed that the success rate of debt settlement is less than 10%.


The Nebraska Deceptive Trade Act states that a person engages in a deceptive trade practice when they make “false or misleading statements of fact concerning the reasons for, existence of, or amounts of price reductions.”  Neb. Rev. Stat. 87-302.

It is a also deceptive when a business “represents that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits, or quantities that they do not have.”

Debt settlement advertisements make false representations about price reductions.  They represent the ability to achieve results they clearly do not obtain.  The advertisements are misleading.  Representing that $25,000 of credit card debt can be settled for 36 monthly payments of $375 monthly is misleading.  Representing that these programs work when the success rate is less than 10% is misleading.

If you have been mislead by a debt settlement company about the success rate of their program you may have a claim for damages under the Nebraska Deceptive Trade Act, including a claim for attorney fees.