Ways to Protect Yourself Against Debt Relief Scams

Written by Neroosh Nakib

Facing a large amount of debt can be emotionally and financially overwhelming, and for most Americans, debt is part of life. In fact, on average, American’s owe $104,2151 to various creditors. For those who find their debt unmanageable, that number can be much, much higher. With their financial peace on the line, many Americans are easy prey for debt consolidation scammers. Debt consolidation is a legitimate way to handle debt that has become overwhelming. Sadly, there are illegitimate companies taking advantage of consumers.

Legitimate debt consolidation and debt counseling provide help to consumers who are in over their heads with multiple payments to various creditors. These companies help consumers with either advice to help them handle their creditor relationships or options for loans that can consolidate the total debt resulting in a more manageable monthly payment.2 While legitimate help does exist, the bad guys found a way to use a good concept and twist it into a scam, and they now take advantage of people who are struggling.

What is a debt relief scam?

A legitimate debt relief counselor or debt consolidation company can be recognized by how clearly they communicate realistic outcomes and expectations. A legitimate debt relief program will require an in-depth review of your financial situation, debts, and assessment of which creditors are owed. Legitimate companies will also have accreditation which can be verified, and they will never ask for a lump sum payment to join their program or utilize their services.2 Debt relief scams, on the other hand, are notorious for overpromising and under delivering if there is any delivery of identifiable service at all. These companies will make claims that sound miraculous, but sadly there are no miracles when it comes to debt relief.  When facing debt, you must arrange to pay, consolidate, or face negative consequences. As harsh as this sounds, it’s not as terrible as the outcomes when a consumer becomes the victim of a debt relief scam.

The Federal Trade Commission (FTC) is hard at work uncovering and filing charges against companies that take advantage of consumers facing unmanageable debt. In 2010, the FTC put a rule in place3 that made it clear that fees cannot be charged up front by debt relief service providers. This is a major win because unfortunately many people have succumbed to the scam and parted with tens of thousands of dollars in some cases to settle debts—they were left with empty bank accounts and the same if not more debt.

How to Spot a Legitimate Debt Relief Company

If you’re facing debt repayment that feels overwhelming, there are relief programs and counseling available in addition to debt consolidation loans that could help. Before digging into your options, arm yourself with the knowledge needed to identify any program or service that is not legitimate.

  1. Legitimate companies won’t overpromise results.4 If it sounds like a miracle solution, it’s likely not a real possibility. Debt cannot be magically deleted, and while some creditors will accept a settlement for less than the original amount owed it’s not guaranteed. To reach a settlement, many conversations and back and forth will take place. Any company that guarantees they can reach a settlement for you without even looking at your financial situation is likely a scam.
  2. Urgency or aggression during the sales pitch are both signs that something is off.2 Debt relief programs should, frankly, offer relief both from debt and the stress, worry, and fear that often accompany serious debt. If a representative is acting more like a salesperson than an ally offering options, it’s important to dig deeper to ensure the company is legitimate.
  3. You should always initiate contact with a debt relief program representative.4 Cold calling, including to people who are on the National Do Not Call Registry, is a tactic used by companies that do not offer legitimate debt relief assistance. If you’re in debt and looking for solutions, the choice is yours to initiate contact.
  4. A legitimate debt relief program will not cost an arm and a leg.2,4 If a company asks you to pay a fee prior to beginning work on your account, this is a huge red flag that the company is not being honest. Legitimate debt relief programs, counseling, and even consolidation loans charge reasonable, typically somewhat modest fees to help consumers who are in a very difficult situation. These services are intended to help consumers avoid more serious consequences associated with crippling debt. Unfortunately, many people have fallen victim to these scams and they’ve lost significant chunks of money as a result by paying these fraudulent, up-front fees.

How can you protect yourself from debt relief scams?

As with any scam, the best way to protect yourself is to take time and ask questions. While a situation may feel urgent, and even somewhat scary, there is legitimate help available. Significant debts do not add up overnight, and solving the problem won’t happen quickly. Whether you choose to consolidate your debt with a loan, heed the advice of a credit counselor, or work with a creditor to settle your debt, the road to being debt free will take some time. Taking the needed time to consider your options, the pros, cons and methods, is perfectly acceptable. Spend time researching options, scouring consumer reviews, and ask as many questions as you would like before making a commitment to a debt relief program. Give yourself the space needed to hear and heed any warnings your gut may be giving you. In a world filled with people who want to take advantage of us, there are likewise people and companies that are fighting the good fight to protect consumers and provide exceptional service. Finally, the most important thing to keep in mind if you’re facing debt challenges is that you will find a way to the other side. Take care of yourself and only push forward one step at a time.

Sources:

1. Streaks, Jennifer (2024, Jul 17). Average American Debt in 2024: Household Debt Statistics Retrieved from: https://www.businessinsider.com/personal-finance/credit-score/average-american-debt

2. Warren, Karon (2024, Jul 10). Do You Know the 6 Warning Signs of a Debt Consolidation Scam? Retrieved from: https://www.investopedia.com/do-you-know-the-warning-signs-of-a-debt-consolidation-scam-8675930

3. Federal Trade Commission (FTC) Debt Relief and Credit Repair Scams Retrieved from: https://www.ftc.gov/news-events/topics/consumer-finance/debt-relief-credit-repair-scams

4. Rodriguez, Joshua (2024, Feb 23). Retrieved from: https://www.cbsnews.com/news/5-debt-relief-red-flags-to-know/