By Mark Huffman
ConsumerAffairs.com
May 26, 2010
Consumer debt, including credit card debt, is at an all time high, and that has led to an explosion of questionable "debt settlement" companies that claim they can almost magically solve your debt problems. All you have to do is pay a hefty fee, in advance.
If only it were that easy. For people drowning in debt, the siren song from the debt settlement marketer can sound enticing. Desperation leads many consumers to reach out to these companies, only to find they are left in even worse financial shape.
If you are overwhelmed by debt, you probably should talk with someone for advice -- but not someone who is trying to sell you an expensive service. To help you weed out the scammers from those who may actually be able to help, here are six signs that the debt settlement company is a scam.
1. They claim they will contact your creditors and settle you accounts for "pennies on the dollar"
How do they do that -- wave a magic wand? Why is your credit card company, for example, going to happily agree to accept taking a loss on your account. They probably won't, until they have exhausted all their options.
2. They claim to "Guarantee 100 percent success"
Think about that one for a minute. Does any enterprise ever achieve 100 percent success at anything? To believe that, you would have to believe that the debt settlement company has a magic formula.
3. They tout a "new government program" to bail out credit card debtors
By now everyone has heard all about the various "bail outs" and many people have obviously wondered why they aren't getting bailed out. Debt settlement companies want you to believe that the government -- President Obama in particular -- has come up with a program to provide money just for you.
4. They promise they can stop all debt collection calls or lawsuits
Consumers being harassed by bill collectors find this pitch almost irresistible. Unfortunately, no one can stop a legitimate debt collector from contacting you about a legitimate debt, as long as they follow the rules. If you think a debt collector is being abusive, you should contact your state attorney general, not a debt settlement company.
5. They charge you a full fee, in advance
Scammers like to get paid in advance. In fact, they insist on it. They want to have received all your money before you figure out you've been scammed. Many states have recently passed laws prohibiting advance fees for debt settlement services. Whether your state has or not, its never a good idea to pay in full in advance.
6. They tell you not to contact creditors
A scammer will tell you not to talk to your creditors because they don't want you to get correct information. As long as they can keep you in the dark, they can keep extracting fees. In fact, if you are in over your head, you should talk to your creditors about your situation and express a willingness to set up a payment plan.
To deal with your debt you have to start somewhere, and that somewhere is usually with a budget. Work out a realistic plan to make ends meet, putting money aside to work down your debt.
If you need someone to talk to, a credit-counseling agency can advise you on managing your money and making a budget, and usually can offer free education materials. Find a credit counselor through a college or university. Or contact the National Foundation for Credit Counseling , a 50-year old organization that carefully screens member firms.
