One of the latest FTC rules to go into effect is one that bans debt settlement companies from charging up-front fees. In the past, these fees have been notoriously expensive, sometimes resulting in hundreds, or even thousands, paid to debt settlement companies before the results are in. In some cases, the results are never delivered, and borrowers trying to do the right thing lose the money they paid – and still end up filing for bankruptcy.

The FTC hopes to change that by banning up-front fee collections from debt settlement companies. Before such companies can collect huge fees, they actually have to show you that your creditors agree to the settlement amount. You may have to make one payment to prove that you can enter a debt settlement program, but gone are the large up front fees that used to deplete a borrower’s savings before any progress on the debt actually began.

Other rules recently enacted by the FTC also require debt settlement companies disclose how long the process could take, as well as the final amount that consumers will end up paying, including how much of the money is used to pay fees to the settlement company. It sounds as though there are some solid protections in place, but you might not be as well off as you think.

Limitations to the Up-Front Fee Ban

As always, there are loopholes to this rule. The biggest loophole, though, is that the up-front fee ban only applies to debt settlement companies providing services over the phone. If someone from the company drops by to sell you in person, or if you visit a local debt settlement agency, you are not protected by the ban, and you could still end up paying the up-front fees.

Additionally, you have to watch out for debt settlement companies flirting with dishonesty by implying that they are attorneys, rather than firms devoted to earning money off your debt problems. This ruse introduces a whole new range of fees that you might end up paying.

Do-It-Yourself Debt Settlement

If you are deep in debt and want to try to settle your debt, you don’t actually need a debt settlement company. You can do it yourself. It takes some time and persistence, but it is possible to contact your creditors on your own and work out some sort of agreement to pay a portion of your debt.

Even if you can’t work out a debt settlement on your own, you don’t need to turn to a debt settlement company that seems a little shady to you. The U.S. Trustee Program offers a list of approved credit counseling agencies that can help you develop a debt repayment plan, and that can help you get your debt situation under control. There is no reason to rely on a debt settlement company that may charge outrageous fees, taking advantage of your desperation to get out of debt.

With some planning, and maybe some help from a reputable credit counselor, you can become debt free, and get on the path to financial freedom.