Debt relief scams exist because so many of us are in debt and we dream of being rid of the debt, of resolving it once and for all, and not having the burden of owed funds on our shoulders. In fact, most of us are so excited to be out of debt that we often don’t check out things as thoroughly as we should.
Are You “In The Deep”?
Millions of people have this exact problem. What advice would you give to someone who is thousands in debt, has nine credit cards, and a minimum-wage job? Quit buying things with money you don’t have? Make better choices?
These problems have no easy fix. They require a constant commitment to personal finances. Because who wants to pay today for the mistakes made ten years ago? Debt relief programs give debtors a feeling of hope. Would you believe it? Some creditors are willing to:
- Reduce interest rates if you negotiate
- Forgive your debt if it affects them negatively
- Organize your debt plan to make returns faster and easier
How can they make such promises? Everybody knows debt doesn’t go away overnight. But some companies are okay lying to their clients because they want to profit from other people’s hopes. If you’re unaware, debt relief scams will get you deeper into the red.
How Debt Relief Fraud Works
A legit company that promises “debt relief” will get you affordable interest rates and help you meet the deadlines. In contrats, when the service is fraudulent, you end up in a worse position. The following services might be suggested to you by a dubious debt relief agent:
- The advertiser promises a service after you pay upfront, but they do nothing. (see advance fee fraud)
- They fix your debt in the short term at the cost of tomorrow. You’ll pay more interest for more years.
- They solve the debt problem by sacrificing your credit score. You’ll pay more on insurance, security deposits, won’t qualify for loans, even get calls from collectors. (see debt collection scams)
In the best-case scenario, a credit relief scam will do nothing directly. You are however, indirectly at risk of advance fee scams, phishing, and banking fraud.
If a fraudster hurts your credit score, it could take years to fix it. If you don’t prevent these risks, they could cause permanent problems with your finances.
Types Of Debt Relief Scams
Why do people fall for debt fraud?
- Scammers show what debtors want to see .
- People owe so much debt that it’s uncomfortable to deal with it. They choose to skip research, avoid questions, and ignore problems.
- Emotions prevent clear thinking. When a debtor responds to a debt relief program, it’s likely a reaction based on fear, hope, or desperation.
Even more thoughtless, they choose to take risks.
“I already owe over $10,000. It cannot get worse, so I’ll try this program even though I know nothing about it.”
Scammers have a clear image of what their victims think and use it to trick them psychologically. Here are some examples.
Debt Settlement Fraud
A person offers to negotiate rates with your creditors for a price. The problem occurs when:
- The claims are unrealistic.
- You need to pay upfront.
For example, they will claim to reduce your debt to 50% of what you owe. It sounds tempting to pay a few hundred dollars when they claim to cut thousands of dollars in debt. Many targets may also feel like it’s their only choice.
You can find companies that get actual results, however they will not cut unrealistic amounts off your debt. And if you pay upfront, the scammer will do nothing but run away.
Misleading Debt Management Plans (DMPs)
Most DMPs are fee-free and will reduce your monthly payments. A DMP company can guide you on the plan to get affordable rates.
“You’ll only pay what you can afford” sounds great, doesn’t it?
Well, fraudulent companies will advertise these terms for debt types that don’t apply. You’ll have paid for a plan you don’t need.
A DMP can’t cover priority debt. These include mortgage and rent, gas and electricity, TV license, council tax, income tax, and fines. Even if your plan can cover that, it won’t stop creditors from adding charges.
Debt Consolidation
Debt consolidation promises lower interest rates and monthly payments. In theory, the company will combine multiple creditor debts into one, then take a loan to cover them all and achieve those privileges.
A common mistake is not checking the pros and cons of consolidation. Remember, credit score issues could limit your finances for decades.
Fraudulent companies never disclose these terms. Even if you move forward, you may or may not reduce the rates. It’s a high probability, not a guarantee.
Bankruptcy Scam
“Pay off over 90% of your debt, no loans needed!”
You sign into this debt relief program and agree. They’re right: your load has reduced, but your status appears as “BANKRUPTCY.”
Declaring bankruptcy has pros and cons. You get rid of most of your debt at the cost of your credit score (which will be around 500 points).
You can imagine the limitations…
- Hard to get financing or apply for a specific job
- You now need to pay security deposits for basic expenses, even if you’ve always paid on time.
- Denial of tax returns
- The potential loss of real estate assets
- Future debts are more strict
If it becomes harder to get money, what’s the point of having no debt?
Bankruptcy is a last-resource strategy that rescues your present at the cost of the future. Do NOT let fraudulent companies use this option unless you’re good with the downside.
Make Money Schemes Targeting Debtors
Better than reducing debt is to have none of it.
“If only I had more money, I could fix all my problems!”
Although saving money helps, you will get out of debt faster if you generate more income. A person owing thousands will likely feel desperate and fall for get-rich-quick schemes.
The scammer creates an ad campaign targeting debtors only: students, small businesses, or people with a bad credit score.
When the victim clicks the ad, the scammer can do anything he wants. Pyramid schemes, phishing websites, premium freelance pages, lottery scams.
Red Flags Of A Debt Relief Scam
A lot of them work like advance fee scams. You pay upfront for something they promise but will never deliver. These “fees” are small enough to get people to pay. A scammer who wants to earn more will create a generic message to get as to many people as possible.
You don’t need to fall for a scam to realize the trick. Use these four ways to detect fraud before it’s too late.
One Size Fits All
Check the advertised offer. Ask questions:
- Do they promise to reduce it fast by a certain percentage no matter the case?
- Do they ask about your situation, or they say it “doesn’t matter?”
- Do they offer great solutions regardless of your credit score?
- Do they offer you one thing without showing you every other alternative?
The main reason debtors don’t receive help is qualification. No company can promise a universal solution for everyone. With these turnkey solutions, there’s no credibility. Every case needs to be analyzed and an offer made separately.
AFCC Check
The American Fair Credit Council is an association of companies that have agreed on following the best practices. Their rules protect consumers from scams.
An unregistered company won’t have the AFCC credibility mark. If they aren’t a member, don’t work with them.
Upfront Payments
When all you think about is debt, you won’t think clearly about the offers you are being presented. They can ask you to pay upfront the full amount, and you assume they will deliver.
Nothing happened. Confidence tricks target people who feel overwhelmed by stress, fear, and other emotions. Another way scammers lure victims is by using an excuse to send them fake money (see cheque fraud).
Fear Tactics
A rule of thumb is to always pay attention to the tone. Oppressive scammers will try to sell you their service. Be ready for tricks like “the fear of missing out.”
“You may never pay off your debt.”
“You don’t want to spend your whole life coping with this burden.”
“They may not give you a second chance to get a loan or fix your credit score. I can’t keep the offer forever.”
Debt Relief Is Real: How To Prevent Credit Fraud
The shown examples are templates. Scammers always come up with creative scheme variations, which is why you should be ready. It requires knowledge, research, and common sense.
Have Realistic Standards
No company can cut your debt by 50%. They neither can reduce interest without involving some limitations. Remember, credit companies can help, not solve 100% of your problems.
You’ll find many false promises. Assume that any change will have a consequence and reject anything that sounds too good to be true.
Know Your Debt Management Plan
Before you look for help, be aware of what others can or cannot do. A fraudulent company will lie and say “Yes” to everything only to make you sign the contract.
A DMP doesn’t cover first-priority debts. It does cover debts such as personal loans, bank credit, payday loans, and overdrafts. If the company is a member of the AFCC, they likely know their do’s and don’ts.
Comparative Research
It’s risky to trust a single company even if there are no red flags. Compare with several companies to have an informed opinion. Choosing the wrong company will just worsen your outstanding problems.
Once you’ve researched, you know the value ranges you can expect. Anything that gets out of the norm is suspicious.
Get Help From a Credit Counselor
Credit counseling will help you understand the ins and outs of credit relief and avoid costly mistakes. Although they train their staff for DMPs and advisory, you can get credit counseling for free.
A legit company uses inbound marketing to get clients via information. Here’s the FTC guide to choose your counselor.
Ask Accurate Questions
- Will all of my creditors work with your company?
- How long will it take, and how much will it cost?
- Will you be making monthly payments to my creditors?
- How are you calculating my estimated savings?
- Are there tax consequences I should know?
The Bottom Line
When you look into a company you should be able to find, independent of their website, information about the business, where they are licensed, etc. If you cannot find this information you need to steer clear of them at all costs.
In addition to all of this, you need to think rationally and leave all emotion out of it. This can be hard, especially when you are in debt, but you need to take at least 24 to 48 hours to consider any option and to look into the company before accepting. You need to look at facts and not just rely on your hopes of a quick resolution.