How To Avoid Debt Relief Scams
- Debt relief scams can damage your credit score and strain your finances.
- Upfront fees, high-pressure sales tactics and “too good to be true” guarantees are all red flags.
- Knowing what to look out for can help you avoid falling victim to a debt relief scam.
Consolidating your debt or working with a debt relief program can offer much-needed relief to overwhelmed borrowers, especially if you’re struggling to keep up with your payments.
But the downside is that debt relief scams are out there — and falling victim to fraud could drain your bank account and tank your credit score. Here are some simple tips to help you weed out scams from legitimate debt relief options.
What are debt relief scams?
Debt relief scams are exactly what they sound like. Fraudsters will present themselves as reputable debt relief companies, offering a quick fix to your credit problems.
These scam artists prey on consumers who have significant debt, and they often make big promises that can sound very tempting to a financially stressed borrower.
For example, they may offer to eliminate your debt or negotiate your balances in exchange for an upfront fee.
They might not provide an actual service, and even if they do, there’s no guarantee they can eliminate your debt or negotiate your balances, and they might tank your credit in the process.
Red flags of a debt relief scam
Debt relief scams usually follow a predictable playbook. Below are some common red flags to look out for.
Upfront fees
This is the biggest telltale sign of fraud. After presenting an attractive list of debt solutions, the scammer may request an upfront fee to solve your credit problems.
For example, they may agree to remove negative entries on your credit report for a one-time fee and then fail to make good on that promise. According to the Better Business Bureau, some victims spend thousands on bogus fees.
High-pressure sales tactics
Legitimate debt settlement companies should never pressure you to act quickly or make a commitment on the spot.
These pushy sales tactics are meant to confuse consumers and convince them to opt in before they have the chance to do their research. If you’re presented with a limited-time deal or feel pressured to make a decision, you might be getting scammed.
“Too good to be true” guarantees
Scam artists are hoping to take advantage of desperate consumers who feel burdened by debt. In that vein, they might promise to:
- Significantly reduce or eliminate your debt
- Quickly repair your credit score
- Remove negative reports from your credit report
How debt relief scams work
Fraudulent debt relief companies usually target consumers in the following ways. Understanding how they work can help you avoid a scam.
Phishing
This is when a scam artist poses as a legitimate debt relief company. The goal? Getting you to offer up personal information they can use against you, such as credit card numbers or bank account details.
They might reach out using emails or texts that look like the real deal—some even create websites to make the scam look legitimate.
Fake debt reductions
You may be asked to send money to a debt relief company that promises to negotiate with creditors for you and reduce your debt.
But the bulk of your payments might go toward fees instead of your debt balances. That could be an expensive mistake that also damages your credit. Delinquent accounts could even lead to legal issues.
False claims about what they offer
Scams can apply to credit cards, student loans, mortgages, car loans and more. A shady debt relief company may present services it won’t follow through on or even offer.
That might include the ability to reduce or eliminate your debt within a specific timeframe, reduce loan costs or prevent you from defaulting on a loan.
Legitimate vs. scam debt relief services
There are some legitimate debt relief companies. Here are some key differences between legitimate and scam companies.
| Real services | Scam services | |
|---|---|---|
| Upfront fees | Reputable companies typically can’t ask for a fee until they’ve delivered a successful result. That might involve reducing a debt or brokering a debt settlement agreement that you make payments toward. | If you’re being asked to pay an upfront fee to work with a debt relief company, that’s a clear red flag. |
| Promises are too good to be true | An above-board company won’t promise to solve all your debt problems immediately. Instead, it will show how its services, like debt consolidation or credit counseling from a certified professional, can help. | Scam artists usually make false promises, like guaranteeing to improve your credit quickly or eliminate all your debt. |
| Transparency | A legitimate company should be upfront and clear about its services, fees and limitations. | If you’re approached by a company that seems evasive or unwilling to share your rights as a consumer, it might be a scam. |
| Communication style | If you’re seeking debt relief, you’ll want to choose a company that communicates in a respectful, clear way. | Debt consolidation scams may use confusing language or high-pressure sales tactics to get you to act quickly. |
| Customer reviews | A reputable debt relief service should have positive online reviews and a good Better Business Bureau rating. You’ll also want to check the Consumer Financial Protection Bureau’s consumer complaint database. | If you’re unable to find customer reviews, or come across negative reviews or a poor Better Business Bureau rating, proceed with caution. |
How to check if a debt consolidation company is safe to use
It’s wise to do your due diligence before working with a debt consolidation company. A little research could help you steer clear of a scam. First, determine whether you’re looking at a debt management plan, debt consolidation loan or debt settlement company.
Check for licensing and accreditation
Many states require companies to have special licenses for debt collection. Your state may also require debt negotiation licenses and other accreditations. For example, Virginia requires debt settlement companies to be licensed.
If you’re looking at a debt management plan, you should look for a credit counselor. The U.S. Department of Justice maintains a database of approved Credit Counseling agencies.
Review consumer complaints and ratings
Check the CFPB’s consumer complaint database to see if any complaints about the company have been submitted. You’ll also want to check the Better Business Bureau to see if the company has a good rating.
Negative remarks or a poor rating might make you wary of working with them. You can also look up customer reviews online. If other people have been scammed, you might find clues.
Verify their fees and services
Directly ask about the company’s fee structure and your rights as a consumer. You’ll also want to clarify how their debt relief process works, what you can expect in terms of their services, and if there are any risks to be aware of. Transparency is the name of the game.
The Federal Trade Commission (FTC) prohibits for-profit debt relief companies from charging upfront fees before settling or reducing a consumer’s debt. These companies are also obligated to disclose important information to consumers.
Free tools to help you manage debt
Depending on your situation, you might decide that working with a debt relief company isn’t for you. Here are some actionable steps for consumers who prefer a DIY approach.
Use a debt consolidation calculator
A debt consolidation calculator can show you how much you could save by rolling your debt into one new consolidation loan. It will start with the current balance, interest rate and monthly payment for each account, then churn out your expected savings. From there, you might opt for a personal loan or 0% balance transfer card.
Use a loan comparison tool
If a debt consolidation loan looks like a good option, be sure to shop around and compare lenders before making a decision. You’ll want to consider loan amounts, fees, interest rates and customer reviews to make an informed choice. You can use LendingTree to compare multiple offers from lenders without affecting your credit score.
Monitor your credit score
It’s always smart to stay on top of your credit health, whether you’re working with a debt consolidation company or not. A credit monitoring service can do the heavy lifting for you. LendingTree Spring offers free credit alerts and score updates, along with personalized credit-building tips and loan offers.
Create a budget to pay off debt
This starts with clarifying your debt balances, interest rates and monthly payments. You’ll also want to understand your monthly income and expenses.
From there, you can create a budget and select the debt repayment strategy that works for you. The goal is to strike a balance between debt repayment and other financial goals.
If you do consider working with a debt relief company, be sure to do your research before paying the company or signing any contracts. It could save you time and money, and might even save your credit score.
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