Don’t ignore these red flags of a debt settlement company eager to prey on desperation.
13 min read
When you’re behind on credit card or loan payments and feel like you’ll never be free of thousands of dollars of debt, a debt settlement company promising to settle your debt for less than owed may sound like the answer to your problem. If you’re not careful, however, signing up for debt settlement could add even more stress to your money troubles.
While legitimate debt settlement companies exist, debt settlement programs should be a last resort, since the industry is plagued by deceptive practices and misleading claims. There are also plenty of debt settlement scams out there, ready to take your money by reeling you in with exaggerated promises.
If your first introduction to a debt settlement offer is an illegal robocall, a recorded message claiming a company can wipe out most or all of your debt, that’s not a company you want to call back.
According to the Federal Trade Commission (FTC), debt relief scammers tout their services illegally to consumers on the Do-Not-Call List. “These operations often charge cash-strapped consumers a large up-front fee, but then fail to help them settle or lower their debts – if they provide any service at all,” says the FTC.
When a company promises to persuade creditors to settle your debt for a lower amount, that’s just big talk with nothing to back up the claim. “No one can guarantee that your creditors will forgive your debts,” according to the FTC.
A legitimate debt settlement company may negotiate to reduce a debt, but it won’t guarantee debt-reduction success.
Charging upfront fees or an upfront lump sum to settle a debt is illegal, according to the FTC. When a company says it will start negotiating with your creditors or providing other services only after you pay a fee (or fees), that company is probably bad news.
When you encounter such a company, do yourself a favor and run the opposite direction. Then help other consumers by reporting the questionable debt settlement company to the FTC.
Just because a debt settlement company has a website doesn’t mean the business is legitimate. Is there an address and phone number that you can call to talk with an actual person? If not, stay away. If there is contact information, you must still be cautious.
Even if there is a number you can call, that’s no guarantee that the company is legit. To dig up more information, research online, check the FTC website, search the Better Business Bureau, and call your state attorney general office to check on complaints.
Don’t take the word of an agent on the phone that a company can solve your debt problems with a settlement for pennies on the dollar or a similar ridiculous claim.
A legitimate debt settlement company will put all terms and fees in writing. Even then, be careful, since the debt settlement industry has its share of disreputable companies.
When a company promises it can access an allegedly little-known government program or acquire government funds to help you pay or settle debt for a upfront or processing fee, beware. In one such ruse, the scammer targeted churchgoers, accepting payment and then “paying” the bills electronically before canceling payment.
While there are some legitimate government sites that offer programs to help with medical bills or utilities, you don’t have to pay to receive those funds.
When a debt settlement company says you must cut off all contact with your creditors and doesn’t disclose potential consequences such as collection actions or damage to your credit, that’s a red flag of a debt settlement scam. Before you sign up for its services, a debt settlement company must disclose possible negative consequences of stopping payments to creditors.
According to the FTC, the debt settlement company must also tell you: fees, conditions and terms of service; how long it will take to achieve results; the amount you must save in a dedicated account before the company will make an offer to each creditor on your behalf; that money in a dedicated account is yours to withdraw at any time without penalty.
Debt settlement isn’t for everyone. But it can save the financial lives of those who qualify, which makes it important to have a free debt analysis before signing up to pay for anything.
First find out the differences between debt management and debt settlement programs – then give us a call. Debt.com vets the companies we work with. It’s free to call and you may learn you’re better suited for a different debt solution.
Save money, pay off debt, and achieve financial freedom faster with Qoins today!