Debt Relief: How To Avoid Scams And Pick The Best Firm
For those whose debt has mounted to the point where it appears impossible to pay it all off, debt relief programs are an option to help avoid bankruptcy and make payments at a level that are attainable.
Unfortunately, those who are under the pressure of uncontrolled debt are also vulnerable to scams that present with the illusion of resolving their problems, but just leave the victims in a worse situation.
Understanding how debt relief is supposed to work and what are the hallmarks of a scam are key to both getting on the right path and avoiding the wrong one.
Debt relief companies are required to provide information in advance of a consumer signing up for the services, including the cost and the terms. Here are other details they must disclose:
- What fees can be assessed.
- The anticipated length of time expected to get results, including how long it will be before a debt settlement offer will be made to each creditor.
- How much money you have to accumulate in a debt settlement account, as well as the percentage of debt owed that must be deposited before a settlement offer is made.
- What the consequences are if you stop making payments to creditors.
- That the money you deposit is yours - along with any interest earned - and may be withdrawn without penalty.
Warning signs of scams and other problems
It's one thing for a debt relief firm to try to paint an optimistic picture of getting out from under a heavy debt burden. It's another to guarantee that most of your debt will disappear. Dealing with debt is hard work and takes time.
If you are dealing with a company that doesn't meet with you face-to-face, the Federal Trade Commission's Telemarketing Sales Rule prohibits the collection of any fees in advance of any settlement, reduction or alteration of debt. It has been a common issue among companies offering these services. An investigation by the U.S. Government Accountability Office found that only one of 20 companies told GAO investigators in 2010 that fees would be collected after a successful settlement.
Getting trumped-up guarantees without any proof, such as you'll only have to pay 50 percent of your debt, that the company has been 100 percent successful or that all negative credit issues will be wiped clean are signs of trouble. The FTC and other consumer protection agencies have found that 10 percent or less of all of those participating in these programs successfully complete them.
Credit repair clinics
The FTC notes that offers to clean credit reports of damaging information are suspect. Only inaccurate information can be removed from a credit report - and that can be requested for free by an individual.
Do some homework
Search for the name of the company you are considering working with and use the word "complaints" to see if others have raised red flags. Use the BBB's complaint database to see if the company has been a source of problems as well as how long it has been around (if there is a record on file). The Better Business Bureau warns consumers to beware of companies using generic names that make it hard to find reviews.
Also, see if the company is part of any recognized association that reviews the credentials of members, such as the Association of Independent Consumer Credit Counseling Agencies and the National Foundation for Credit Counseling.
The bottom line
Be leery of promises, ask for and read the fine print and don't pay money until you understand what it's for - and that it's legal.