Debt settlement offers just the kind of financial relief you are looking for when you are dealing with overwhelming debt. It sure is a great tactic to reduce your debt and resolve it once and for all. However, choosing the right settlement company to work with is of utmost importance if you want things to work out as per your plan. It’s an unfortunate reality that there are multiple debt relief companies out there who are just waiting for the right moment to target their vulnerable customers. For someone who’s new to the process, it really is easy to get caught up in their fraudulent schemes.
In order to protect your credit score and your finances during a debt settlement, it’s important to learn about some of the warning signs of a debt settlement scam. In this guide, we’ll talk about all those red flags and warning signs that you shouldn’t ever ignore.
How Does Debt Settlement Work?
Debt settlement is a financial strategy people often opt for when they are facing financial distress and a huge amount of debt at the same time. It’s a simple negotiation between you and your creditor where you both agree on benefiting terms. You have to pay a lump sum of the total amount of debt and your creditor then forgives the rest of the amount, marking it as “settled” on your credit report.
While there are some reputable companies that can provide you legal and ethical assistance in this process, there are some that just take advantage of the vulnerability of their customers by using deceptive practices.
Common Red Flags To Watch Out For
1-Asking For A Fee Upfront Without Starting The Negotiation
As per the FDCPA, no debt settlement company is allowed to charge any upfront fee to their customers unless the debt has been resolved or settled with the creditor. If a company is asking you for such charges before beginning the negotiations with your creditor then it’s best if you avoid using their services because it’s most probably a scam. A reputable company like Mountains Debt Relief will only charge once the service has been successfully provided and your debt has been settled just the way you wanted.
2-Guarantees Of 100% Debt Elimination
Debt settlement is all about reducing your debt and you shouldn’t expect any debt settlement company to just eliminate your debt entirely. This just isn’t how it works which is why if a company is making claims of completely eliminating your debt or if they are guaranteeing you 100% positive results then you shouldn’t continue working with them. You see, debt settlement is never guaranteed because your creditor isn’t legally bound to accept any such offers or reduce your debt. Whether you go for DIY debt settlement or hire a professional company for it, you can never really tell if the deal will go through or not.
3-Lack Of Transparency
If the company isn’t properly explaining their service to you, not telling you about the timeline of the process or what it costs then this clearly means that they are hiding something from you and they’ll create trouble for you later. In a debt settlement, transparency is of utmost importance and it’s important to have a clear plan or else you can end up into deeper debt or even with a lawsuit.
4-Not Letting You Communicate With Your Creditor
A reliable and trustworthy settlement company won’t ever ask you to stop paying your creditor or communicating with him directly. In fact, for a successful settlement, it’s important that you listen and respond to your creditor because ignoring them can lead you to lawsuits, it can result in collections and it can even further damage your credit. In a nutshell, you should always stay in touch with your creditor and first understand the consequences of stopping your payments before making any such move.
5-Poor Online Reviews Or No Accreditation
We are living in a digital first world and if a debt settlement company really is reliable and reputable then they sure would have a solid online presence or some great reviews by their other customers online. You should always first check for the reviews and ensure accreditation of the company you are planning to hire. Platforms like Better Business Bureau (BBB) can really work wonders here and if the company has poor or negative reviews online then it’s best to avoid them at all costs no matter how convincing they look or sound.
6-Using High Pressure Tactics
Telling you to act immediately or that you have a very limited time to act is another tactic fraud companies usually use to lure their customers. These high pressure tactics can cost you a lot in the long run especially if you fall victim to everything the scam debt settlement company says you to do. Scammers will always want you to commit so that you don’t have any time to think or do your research. A trustworthy company on the other hand will ask you to take your time and consider your options first. They’ll also give you proper time and answer all of your questions without any rush.
What To Do If You Suspect A Scam Debt Settlement Company?
If you suspect that you are dealing with a scam company then it’s important to take immediate action to protect your finances, your personal information and your credit. Here are the measures you should take;
1-Stop All The Payments To The Company
It goes without saying that if you suspect something’s wrong with the company then you should stop making any payments immediately. First of all, you should cancel any automatic payments that you’ve set and contact your credit card company or bank to inform them to cancel any future transaction to the specific company. For any unauthorized changes, you should monitor your account closely.
2-Report The Scam To The Authorities Immediately
If you have the evidence, don’t waste a second and report the company to proper agencies like;
- Federal Trade Commission
- Consumer Financial Protection Bureau
- Better Business Bureau
- Your State Attorney’s General Office
Reporting and complaining the company to these agencies can open investigations and it can help protect other people from falling victim to the same scams in future.
3-Check Your Credit Report
A scam debt settlement company could use your personal and financial information for identity theft and to ensure that everything’s in its place, you should check and monitor your credit report immediately. Here’s what you should do;
- Use annualcreditreport.com to get your free credit report
- Check for any negative changes or unusual accounts on your report
- In case of any errors, place a fraud alert or freeze your credit with the credit bureau like Experian or TransUnion
4-Contact Your Creditor Directly
If your scammer advised you to stop making payments to your creditor and if you did so then it’s important that you talk directly to your creditor and explain to him your situation. Ask him if there’s any chance of resuming the settlement negotiation without any third party in between or if there’s any hardship program that he offers. It’s best if you resume your payments to your creditor in order to prevent any further damage to your credit.
5-Opt For Credit Counseling
A debt settlement scam can really take a dig at your mental health especially when you are already suffering financially. It’s best that after the scam, you take immediate help from a credit counselor to learn what you can do to make things right now. Agencies like National Foundation for Credit Counseling can really help you here by creating a budget, managing your debt and helping you explore the right debt relief option as per your situation.
FAQs
Q1. What Is A Debt Settlement Scam?
A debt settlement scam is when a company promises to help you eliminate or reduce your debt but fails to deliver the results or use deceptive practices that could harm you. These scammers often charge upfront fees, make unrealistic promises and disappear when they get your money.
Q2.What To Do If I’ve Already Paid A Scam Company?
You should immediately stop making any further payments and register a complaint with the authorities, request a refund in writing and contact your bank to cancel any future automated transactions.
Q3. How Can I Protect Myself Against Debt Relief Scams?
You should always check and do your research properly when hiring a debt settlement company. The easiest way is to try the Better Business Bureau and check the reviews of the company. If you even have a little bit of suspicion regarding the company then it’s best to avoid them. Moreover, you should ask the company for their physical address and if they are asking for any fee upfront then it’s a clear red sign and you shouldn’t ignore it.