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Debt can be challenging and the idea of debt relief can be an attractive one. After all, if you’re struggling to make your payments each month and someone offers you a way out, it makes sense to listen to what they have to say.
And, while there are plenty of legitimate debt relief services, it’s also important to be cognizant of the potential for scams. After all, those looking for debt relief may be eager to get help, making them easy targets for scammers.
But what if you’re struggling to make your payments every month? Well, you don’t have to avoid debt relief solutionsaltogether — but it is a good idea to be aware of the red flags that signal a scam.
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5 debt relief red flags to know
A quality debt relief solution can help you eliminate your debt faster and more affordably than you otherwise could. But a scam could put you in a worse position overall. Here are the red flags you should look for as you compare your options.
They make promises that are too good to be true
“The easiest way to spot a scam is probably if it is too good to be true,” says John N. Wood, Esq., managing attorney at Grant Park Legal Advisors. “For example, if they guarantee or promise a specific result.”
Most legitimate debt management and debt forgiveness programs can’t tell you exactly what the result of their services will be. That’s because much of the savings in time and money they offer are achieved through negotiations.
As such, if a debt relief provider promises something like, “We’ll settle for 50% less than what you owe” before you even sign up for the service, that provider could be stretching the truth or scamming you.
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They charge up-front fees
Scammers work hard to get you to part with your money. So, if someone asks you to pay a fee for a debt relief service they haven’t yet provided, it’s a red flag that the person you’re talking to is attempting to scam you.
It’s also against the law to try and collect a debt relief fee before any work has been done. According to the Federal Trade Commission, the advance fee ban dictates that fees for debt relief services may not be collected until:
The debt relief service successfully settles or changes the terms of at least one of the debtsThere is a settlement agreement, debt management plan or other agreement between the consumer and the creditor that the consumer has agreed toThe consumer has made at least one payment to the creditor as a result of the agreement negotiated by the debt relief provider
They contact you via an unsolicited phone call
“Another flag may be an unsolicited call,” says Wood. “While they may be legitimate, this should cause the consumer to do a little more research before engaging with the debt company.”
It’s worth noting that some legitimate debt relief services use telemarketing as a way to attract new customers. Still, it’s also a tool used by scammers, so before you sign up for a service via an unsolicited phone call, you should do your research.
They claim to be affiliated with your financial institution
Another red flag to consider is if the debt relief service claims to be affiliated with the financial institution you owe money to. Debt relief companies are third-party service providers and are not typically affiliated with lenders.
Pretending to be affiliated with your financial institution is a common practice scammers use to win trust. In fact, it’s one of the ways that the Federal Trade Commission says that the alleged perpetrators of a debt relief scam stole millions of dollars from people.
They charge fees unrelated to your debt
Legitimate debt relief companies charge fees for the services they provide, and those fees are how they make their money. However, the fees are usually directly related to their success in reducing your debt or changing your payment terms and are easy to understand. On the other hand, scammers will often attempt to charge obscure monthly fees for services that are unrelated to the debt relief services.
The bottom line
If you’re dealing with mounting credit card debt and need relief, there are legitimate debt relief companies to choose from. However, as you compare your options, consider the red flags above to avoid becoming a victim of a debt relief scam.
Joshua Rodriguez is a personal finance and investing writer with a passion for his craft. When he’s not working, he enjoys time with his wife, two kids and two dogs.
