Are you looking for a solution to your debt problem? If so, then you probably saw at least one ad for some type of debt relief. And with all these companies making bold promises to help consumers, it’s no wonder people are confused when searching for help with debt. Which makes them easy targets for debt relief scams.
Debt Relief Scam or Consumer’s Fault?
Now, most companies are honorable (or at least not intentionally dishonest), and will help those who sign up for their services. And some people claim “scam” when in fact it was partly their own fault for not reading the fine print. But you can never be too careful, because the scammers are out there. And so are those companies who are not scammers, but don’t properly educate their clients well about the various types of debt reduction programs.
So if nothing else, all these ads must be confusing — debt settlement, debt management, tax debt relief, debt consolidation, credit counseling, etc — makes my head spin! So I can imagine how the average consumer feels, yikes.
If you check out the online forums, these are the issues that most people talk about:
- “They took my money and did nothing…”
- “They ruined my credit forever…”
- “Now I have more debt than I did before…”
Sometimes it’s true. And sometimes it’s just because the consumer not understanding how debt settlement or credit counseling works. So how does this happen? Why do people get ripped off? Or why do they not know what they are getting into when they sign up?
In most cases, they simply fall for the bold “get out of debt quickly and easily” false promises. And they don’t truly understand what they signed up for. And they have no idea who they hired. Sure, they know the name of the company. But if you were having work done on your house, wouldn’t you do a little investigating before opening your door to some stranger? When it comes to debt relief, its no different. There are no magic pills. No quick fixes. But there are options that can really help you.
If you do it correctly.
The key to successfully getting out of debt is to take action. So if you need help, don’t sit back and do nothing. You won’t get out of debt sitting on your butt and complaining. But how do you go about getting the help you need without ending up in worse shape than when you got started, and avoiding the scams?
Three Steps to Avoid Debt Relief Problems
Here are 3 simple steps to follow so you won’t get ripped off when seeking help with credit card debt:
1. Shop Around and Compare
Learn the difference between debt settlement, debt consolidation, and the other programs. Contact 2 or 3 companies and see how their services and fees are different. Yes, it’s a jungle out there in world of debt relief. So get as much info as possible before you make any decisions that could hurt you. Here’s a quick overview of the most popular debt reduction programs:
- Debt Settlement: A process where a consumer is behind in their payments, and negotiates with the creditor to pay off the debt in full for less than the amount owed.
- Debt Consolidation: A process where the consumer takes out a loan to combine debts into one payment, typically smaller and at a lower interest rate than the current debts.
- Debt Management and Credit Counseling: A process where consumers receive assistance in managing finances, budgeting, and consolidating debt through agreements with creditors, without a loan.
2. Do Your Homework
Ask lots of questions. Do some research.
- Check out a company’s Better Business Bureau rating.
- Go to Google.com and type in the name of the company and see what people are saying.
- Go to Facebook and search the company. You’ll be surprised at what you can find there.
- Educate yourself on FTC website: Debt Relief and Credit Repair Scams.
The following are good questions to ask to learn more about the company, and increase the odds of finding a high quality company to assist you:
- How long have you been in business?
- How does your service work?
- What are the fees?
- What are the “downsides” to your program?
- What is your BBB rating? Are you a member of any professional organizations in the debt industry?
- Do you provide references I can contact?
3. Find Legitimate Debt Relief Help
Again, I would head to the FTC site and read Coping with Debt. The FTC offers the following tip:
Before you do business with any debt relief service, check it out with your state Attorney General and local consumer protection agency. They can tell you if any consumer complaints are on file about the firm you’re considering doing business with. Ask your state Attorney General if the company is required to be licensed to work in your state and, if so, whether it is.
Next, you can search the United States Trustee Program
The United States Trustee Program also keeps a list of credit counseling agencies approved to provide pre-bankruptcy counseling. After you’ve done your background investigation, you will want to interview the final “candidates.”
Although these companies are on the approved list, you should still Do Your Homework as outlined in Step #2.
For more info, read Choosing a Credit Counselor.
Consider Doing It Yourself
For most people, it’s a lot easier to get help than to do it yourself. But it isn’t all that hard to create a plan for getting out of debt, with all the information available on the Internet. The key is to actually follow it.
Here are some steps for handling your own debt management plan:
- Write down your goals
- Go through your savings, checking, and credit card statements. Write down all the expenses you can eliminate (here are 40+ ideas to help you cut your expenses).
- Call your creditors to request a lower interest rate
- Put as much money as possible towards your debt, and keep doing it until they are all paid off
- Get a part-time job
- Sell stuff you don’t use to make extra money
Whichever path you choose, just remember one thing — you must stick with your plan until you are successful! Don’t ever give up, no matter how many “curveballs” life can throw at you. Otherwise you’ll just end up on the same path back to a life with debt.
Pinyo is the owner of Moolanomy Personal Finance and a Realtor® licensed in Virginia and Maryland. Over the past 20 years, Pinyo has enjoyed a diverse career as an investor, entrepreneur, business executive, educator, financial literacy author, and Realtor®.