Got Debt? Watch Out for These Debt Relief Scams!

As this article points out, debt is a problem that is not going away anytime soon. With the average American adult carrying nearly $16,000 in credit card debt, and $33,000 in student loan debt, not to mention a national debt in the trillions of dollars, we are in a hole that only seems to be getting deeper.

It is no wonder that “debt relief” companies are cropping up everywhere you turn these days. But are they legitimate? Can they really help you get out of debt? What are the drawbacks of using this sort of service?

Credit Cards

The article mentioned above warns consumers to beware of aggressive sales tactics and marketing pitches often used by these types of companies to “sucker you in” to signing one of their contracts. Obviously those who are overwhelmed with debt are often desperate for help, and this can lead them to be scammed by unscrupulous companies claiming to be able to help them get rid of their debt quickly.

Some of these companies may simply disappear after you pay them, and never help at all. Others may file some paperwork for you, but otherwise offer no financial help or follow-up. And still others may try to help, but with the current reputation of some of these companies, it may backfire on you, as some creditors may refuse to work with them, meaning you will not be able to negotiate your debt anyway.

Another way this sort of service can come back to bite is you is through the exorbitantly high interest that is sometimes charged once you have consolidated your debt with one of these companies. Often the amount of interest charged is actually more than what you were paying on all of your separate debts, meaning it could actually take you longer to pay off your debt through the debt relief company than it would have on your own!

Working with the wrong debt relief company could also hurt your credit and impair your ability to get credit in the future, and you still may be pursued by creditors throughout the debt relief process.

All of that being said, sometimes people feel they have no other options, so if you do decide to work with a debt relief company, here are several things to look out for:

1. Listen to your instincts. If something doesn’t feel or sound right to you, walk away!

2. Read all agreements and contracts carefully – preferably with an attorney or debt counselor, and make sure you understand everything before you sign anything. If anything seems confusing or unclear, get clarification first. If the answers you get are not satisfactory, walk away!


3. Find out where your payments are going. If your payments are going towards paying off your debts first, rather than paying their fees, you’re probably working with a legit company.

4. Find out what you need to pay before having access to their services. You should not have to pay in full up front before receiving service. If this is the case, it’s probably a scam, and you should walk away!

5. Make sure to do your homework! Check them out with the BBB, ask about other financial bodies they may be registered with, and look around online for any reviews or reports you can find about them before you do business with them.

If you find a legitimate debt relief company to work with, sometimes they can be of help in severe cases. However, as financial planners, we’ve got to ask you to take a good look at how you got in this situation in the first place – and what can you do to keep from ending up in the same place again in the future?

Next week, we will be discussing some options for managing debt yourself, and how you can plan properly to stay out of debt in the first place.

Be sure to check back next week for our follow-up post!


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