It can be tough to know exactly how to tackle your debt. It takes humility to admit you’re having money problems — and go one step farther, actively seeking out the best solution for your situation.
Unfortunately, scammers may try to take advantage of you by posing as an organization that can help one way or another. These dishonest enterprises act like they’re throwing a flotation device into the ocean of debt, promising to pull you to safety if you’ll just hand over your trust — plus plenty of personal and financial information, of course.
You’ll do yourself a big favor by learning the differences between legitimate debt relief companies and scams before you start your search. Then you can protect yourself against frauds while choosing the route with the highest chance of helping eliminate your debt.
But First, What Is Debt Relief?
Debt relief is an option for consumers with major unsecured debt — think $7,500 or more in credit card balances or medical bills. It’s an alternative to bankruptcy that can be less damaging to your credit score and overall financial standing.
Here's how legitimate debt relief works: After acceptance to a program, consumers are instructed to deposit a certain amount into a special account monthly. This continues until the enrollee has stockpiled enough to fund a credible settlement offer. Then negotiators reach out to creditors. The goal is to get them to accept less than the full balance, provided the settled sum is provided in a timely manner. If creditors accept, the money from that account goes toward zeroing out the balance for the agreed-upon percentage.
As with any debt settlement strategy, there are pros and cons to consider. If you have to stop paying creditors to keep up with those monthly deposits, you’re still going to get collection calls and you’ll see your credit score dip. But for those who were already struggling to keep up with payments, it can be better to have a plan than to keep drowning in debt — or file for bankruptcy.
Know These Signs: Avoiding Debt Relief Scams
In 2018, the Federal Trade Commission mailed out 5,745 checks totaling more than $480,000 to people who fell victim to illegal debt relief schemes.
What was this company doing that constituted a scam?
- Exaggerating how much money people could save through the service
- Sending out direct mail ads that mimicked official bank/attorney documents
- Claimed typical customers would halve their credit card debt
- Claimed typical customers would become debt-free in 36 months
- Charged illegal up-front fees to enrollees
By law, debt collectors cannot collect fees up front. Legitimate debt relief organizations like Freedom Financial Network will never charge fees until a debt is settled — end of story. Otherwise they would be violating this important FTC ruling meant to protect consumers.
Legitimate debt relief programs will also avoid making hard-and-fast promises about any outcomes. There’s no such thing as a guarantee when so many factors are involved, especially when creditors don’t have to accept a certain settlement.
Avoid any offer promising to cut your debt by X percent or resolve your debt within X timeframe. Instead, choose a partner that’s realistic about these variables and the fact that results will vary.
Last but not least, always check for social proof that the organization has helped real people resolve their debts — preferably hundreds or thousands of others. With the internet at our fingertips, it’s easy to do a quick Google search, read through reviews and make an informed decision on which program to try.
Knowing the differences between scams and legitimate debt relief solutions will help you choose a reputable partner, giving you the best chance of settling major debts.