Debt Relief Programs: How to Avoid Scams

How Legitimate Debt Relief Programs Work and What They Actually Cost

When you are buried in debt and the phone is ringing nonstop with collection calls it is really easy to grab onto any promise of immediate debt relief assistance that pops up on your screen but the debt relief industry is packed with bad actors who prey on desperate people and knowing how legitimate debt relief programs actually work is your best defense against getting scammed. Legitimate debt relief programs work by negotiating with your creditors to settle your debts for less than the full amount you owe and this is different from debt consolidation which just combines your debts into one loan because debt settlement actually reduces the total amount of debt you have to pay back. The way debt relief programs typically work is you stop making payments to your creditors and instead put money into a dedicated savings account each month and once that account has built up enough funds the debt relief company negotiates with your creditors to accept a lump sum settlement that is less than your full balance. The fees for legitimate debt relief programs are regulated by federal law and the company cannot charge you upfront fees before they have actually settled any of your debts which is a huge consumer protection that the Federal Trade Commission put in place specifically to crack down on debt relief programs scams. The debt relief programs process takes time usually two to four years and during that time your credit score will take a hit because you are not making payments to your creditors and the accounts will likely go into collections which is why debt settlement is generally only appropriate for people who are already behind and cannot catch up through debt consolidation or a debt management plan. Legitimate debt relief programs should be upfront about these consequences including the credit score damage the potential for creditors to sue you and the fact that forgiven debt might be considered taxable income by the IRS and you might need tax debt help or an IRS tax attorney to deal with the tax implications.

The Red Flags That Scream a Debt Relief Program Is a Total Scam

The scams in the debt relief programs space are unfortunately really common and really convincing because the scammers know exactly what to say to desperate people and they make promises that legitimate debt relief programs simply cannot make under the law. The biggest red flag of debt relief programs scams is any company that asks for upfront fees before they have settled any of your debts because this is flat out illegal under the FTC’s Telemarketing Sales Rule and any debt relief programs that do this are breaking the law and should be avoided completely. Be very suspicious of debt relief programs that guarantee they can settle your debts for a specific percentage like promising to cut your debt in half because every creditor is different and every situation is different and no legitimate debt relief company can guarantee a specific settlement amount before they actually negotiate with your specific creditors. Debt relief programs scams often use high pressure sales tactics and try to get you to sign up immediately without giving you time to think about it or read the fine print and a legitimate company will give you clear written information about how their program works and let you make an informed decision without pressure. Watch out for debt relief programs that tell you to stop communicating with your creditors entirely because while you should direct creditors to your debt relief company you still need to be aware of what is happening with your accounts and any lawsuits that might be filed against you. A legitimate debt relief program will also explain the alternatives like debt consolidation credit repair services and talking to a bankruptcy attorney so you can make an informed choice rather than pushing you toward debt settlement as the only option.