Your credit cards are maxed out and you’re behind on the payments. Money’s coming in slow and the next thing to go could well be your home and your car. Things are too far-gone for you to qualify for a loan consolidation. Credit management isn’t an option either. Debt settlement looks likely, but with so much negative buzz surrounding the industry, you’re wondering—is paying for debt relief a scam?
Sometimes it Can Be
A couple of years ago, the Federal Trade Commission announced a $7.9 million settlement with a debt relief company accused of making false promises. According to an article in The Washington Post, this group claimed it could “reduce a client’s total debt by 70 to 80 percent on average including all fees.” The company also promised debts would be settled quickly and comfortably.
The reality was considerably different. Its customers ended up with more debt. Some lost their homes. Others had their wages garnished and many had to file for bankruptcy protection—after having paid for the “service”. While the company made it sound like it was working in the best interests of consumers, its true goal was to make as much money as possible off of their problems.
How to Spot a Scam
When a proposition sounds too good to be true assume it is and investigate the company making the offer carefully before agreeing to it. The firm is in violation of the laws governing the industry if its representatives ask for money up front. Further, anyone promising to solve your situation quickly and painlessly is trying to fit you with a pair of rose-colored glasses.
Think about it: Your debt took some time to accrue, so unraveling it is going to take some time as well. Legitimate debt settlement programs can take anywhere from 24 to 48 months to be resolved. Additionally, any company promising it can deal with all of your debt is an unscrupulous organization. Even companies with long histories and excellent track records cannot guarantee successful settlements will always be reached.
Further, if a debt settlement firm is willing to take you on as a client without any review of your situation, they’re not on the up and up. Certain kinds of debt cannot be settled. Mortgage loans and car loans are secured by the properties for which they were issued. If you get into trouble in those instances the lender will just take them back. Therefore, anyone promising to clear up all of your delinquencies before analyzing them is not to be trusted.
Attributes of a Legitimate Company
As we mentioned above, a legitimate debt settlement company will always start with a consultation to learn as much as possible about your situation to determine if its services are really right for you. Trustworthy firms will only request payment when they’ve settled a debt on your behalf—with your approval. You want to see track records of at least 10 years or more, coupled with accreditation by organizations like the Better Business Bureau (from which you should only consider firms with a high ranking) and the American Fair Credit Council.
So, is paying for debt relief a scam? The short answer is “no.” However, there is a lot of misinformation out there and sometimes a solid company can get caught up in it. The Freedom Debt Relief lawsuits are a good example of this phenomenon. The company is legitimate, trustworthy and experienced. But even the best companies can get tied up in litigation every now and again.
Still, as with any other aspect of being a consumer, the words to live by are caveat emptor—“let the buyer beware”. If you take your time and conduct your due diligence, you can find a reputable company capable of helping you straighten out your finances.