If you need help eliminating credit card bills or getting rid of other forms of debt, a debt relief program may seem like the only viable option for getting your finances back on track.
While you can find some legitimate debt help agencies out there, you can also easily stumble across numerous shady individuals and scam companies that don’t really have your best interests in mind.
Some of these scam businesses are very good at disguising their identity and may operate under different names – making it that much harder to learn about their reputation.
Even if a company you’re thinking about doing business with isn’t a scam, you should think long and hard about the type of debt help being offered.
For instance, is someone offering you enrollment in a debt management plan, or are they saying they will settle your debts for you? There are key differences between debt-management firms and debt-settlement companies.
In my opinion, debt management agencies are more consumer-friendly and offer far better value, services and options for those in debt. By contrast, you get serious credit damage, negative tax consequences, and plenty of other drawbacks when using debt-settlement companies.
Still, if you decide to go with a debt settlement company, at the very least check them out with the Better Business Bureau. The BBB also keeps a running log of debt relief scam operations around the country and is always a good resource when you’re considering working with any agency that says it can help you settle or minimize your debts.
Similarly, if you choose a debt management agency, check them out with the BBB too. Also, make sure the debt management firm is a HUD-certified credit counseling agency.
Beyond these precautions, here are five ways you can spot a debt relief scam:
Prices for services are much lower than other companies.
If the company is offering services at rates that are just too good to be true, it’s probably a scam. These companies or individuals may offer some of the lowest rates in town – and exceptionally lower than the average. The problem is that they use unusually low rates to get you in the door as a client; then later they may pull a bait and switch and try to “upsell” you to more expensive services.
Most debt relief companies maintain a list of associations and organizations they are affiliated with. Don’t be seduced by fancy-sounding names or logos on the company website that don’t actually exist. Make sure the company is actually a member of the association or organization they claim to be a part of by contacting the entity directly and requesting verification. Do a quick Google search on each organization or association listed to make sure they are real.
Requests for an upfront payment.
It’s illegal for debt settlement companies to request an upfront payment for services. If the company is asking for money before they even start working for you, consider it a red flag.
High-pressure sales tactics.
Debt relief companies are supposed to be working with you to create a sensible debt management plan. If they seem very pushy and more like a sales team, they could be part of a scam. Don’t second-guess yourself. Trust your instincts and just walk away. You might need to search further to find a better match, but your hard work will pay off.
Any company that promises to cut your debt by up to 70% or more is probably selling a too-good-to-be true service. Legitimate debt relief companies will take the time to review our financial situation in detail and attempt to reduce as much debt as they can. Few are able to create a plan that leads to a very drastic reduction, so steer clear of any company offering big promises.
It’s up to you to do your homework and make sure you’re not victimized by a debt relief scam. By following the advice above – and being aware of the tell-tale signs of bogus debt relief help – you can avoid unscrupulous individuals who want to make a fast buck off of your financial troubles.
Lynnette Khalfani-Cox, The Money Coach®, is a personal finance expert, speaker, and author of 15 money-management books, including the New York Times bestseller Zero Debt: The Ultimate Guide to Financial Freedom.
Lynnette has been seen on more than 1,000 TV segments nationwide, including television appearances on Oprah, Dr. Phil, The Dr. Oz Show, The Steve Harvey Show, Good Morning America, The TODAY Show and many more.
All information on this blog is for educational purposes only. Lynnette Khalfani-Cox, The Money Coach, is not a certified financial planner, registered investment adviser, or attorney. If you need specialty financial, investment or legal advice, please consult the appropriate professional. Advertising Disclosure: This site may accept advertising, affiliate payments or other forms of compensation from companies mentioned in articles. This compensation may impact how and where products and companies appear on this site. AskTheMoneyCoach™ and Lynnette Khalfani-Cox, The Money Coach® are trademarks of TheMoneyCoach.net, LLC.