An article on mLive.com tells of a possible scandal involving a debt settlement company named ClearYourDebt.com. Apparently, clients who signed up for the company’s services were having their checking accounts drafted yet none of their creditor’s accounts were being paid. This situation not only caused more bad blood with the creditors but with the banks as well as several would-be clients of ClearYourDebt.com wound up overdrawing their accounts. Fortunately, upon investigation, the banks realized that the monies were being mishandled and reversed the penalties and fees to the consumers.While the finer points about this situation can be found on mLive.com, the moral of the story is an important one that I wanted to comment on here and that is the distinction between a debt settlement company and a debt management company. According to the article, the distinctions between the two are

Debt settlement companies are not regulated by the state, but debt management companies are.

With a debt settlement company, consumers usually pay a service fee and the company sets aside money in an escrow account. Then, the company pays off one creditor at a time… The debt settlement companies also sometimes negotiate with a creditor on a lower settlement amount…

With a debt management company, consumers pay monthly and the company also pays the consumers’ creditors on a monthly basis. Debt management firms also can help to cut the consumers’ interest rates…

So let this serve as a ‘debtors beware’ sort of consumer warning. If you are in need of debt intervention, be sure you are clear on which of the two, debt settlement or debt management, you are getting involved with. In either case, be even clearer on the terms of the contract and how your arrangement will impact your finances and credit score moving forward.

Read the full article at mLive.com.

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