How to cancel a debt settlement contract
Dear Credit Smart,
I have signed on with a debt settlement company. Can I cancel it? If so, what happens to my credit card debt? – Anzia
Dear Anzia,
It may take some assistance, but you probably can cancel it, depending on the contract you signed.
The first thing I would say is I hope you haven’t paid them anything yet. If you have, chances are you have lost that money. I’m also hoping you haven’t given permission to draft fees directly from your bank account. If so, contact your bank right away and let them know you are canceling the agreement. If you are worried that the drafts might continue, you could also close your account and open a new one that the debt settlement firm could not access. In some instances, failure to pay may void your agreement, which would actually be to your benefit.
Either way, you need to know that you do still owe your credit card debt. Once you have made the call to your bank, your next call should be to your credit card companies. If the debt settlement compay has already begun working on your behalf, it may have already contacted your creditors, so you need to let them know the same thing you told the bank, which is that you are canceling the agreement.
Because you do still owe the debt, you will need to be prepared to tell your creditors how you plan on repaying the debt. Your decision to sign on with this firm in the first place tells me that you don’t really have a plan for paying the debt. There are several options when it comes to handling credit card debt. Generally, those options are to:
-
Continue to handle the debt on your own.
-
Contact the creditors for help.
-
Settle the debt either on your own or with the assistance of a third party.
-
Work with a nonprofit credit counseling agency through a debt management plan. My nonprofit company, the National Foundation for Credit Counseling, offers such plans.
-
Seek legal protection through bankruptcy.
Getting out of the contract with the debt resolution firm may require the assistance of an attorney. You would definitely need an attorney’s help if you choose to pursue bankruptcy options. A good attorney will look at all of your options and help you decide what will work best in your situation.
Remember to always use your credit smarts!
See related: How to choose a good bankruptcy attorney, FTC bans upfront fees for debt settlement firms