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Just So You Know - Debt Relief

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Debt relief has become a big business in the U.S., and it’s not surprising considering the amount of debt Americans carry. But beware of anyone offering to make your debt disappear, or even to drastically reduce your payments. While it may seem like a great option, there are scammers out there who will put you in an even worse situation than when you started.

Americans Are in a Lot of Debt

As of March 2019, the combined credit card debt in the U.S. reached a whopping $1.057 trillion. Student loan debt is even higher, with 44 million Americans owing a total of $1.5 trillion in student loans. And student loan debt is not just affecting young people. Many people carry student debt for decades after they graduate. Older Americans may also carry student debt from their children’s education. With so much debt, debt relief companies have plenty of potential customers. But before you become a customer, watch out for some signs that your debt relief company isn’t a scam.

Red Flags

There are some red flags that should immediately send you running in the opposite direction. Some of these are illegal, and some of these are just signs that your debt relief company may not be working in your best interest.

  • Taking money upfront - It is illegal for a debt relief company to take money from you before they get results. So if that’s what they are asking, they are clearly not on the up-and-up.
  • Making guarantees - No debt relief company can know exactly how much they can reduce your debt. They may be able to negotiate with your creditors, but your creditors are under no obligation to comply. Beware of a debt relief company that makes guarantees with firm numbers, like how much they will reduce your debt.
  • New government programs - Beware of companies that offer to enroll you in new government programs. This is especially common with student loans. While some government programs allow for reduced debt obligation in specific situations, most people and most debts don’t qualify.
  • Stopping payments - Some debt relief companies will encourage you to stop paying your debts. Either this is a way of playing hardball and getting creditors to negotiate, or they say that they will make payments for you. Either way, you are taking a considerable risk. If you aren’t paying, your creditors could decide to negotiate, but they could also sue you for delinquent payments plus interest, fines, and fees. If the company says that you can make a single payment to them and they will pay your creditors, be very skeptical. Verify that payments are being made to your creditors and that the company isn’t just keeping your money.
  • Requesting personal information - Beware of a debt relief company asks for personal or financial information. Scammers will ask for out credit card numbers and balances or other details before they will give you more information about their services. If they ask, stop right there. Never give out personal or financial information unless you know exactly what a company is doing with it and why and how they will use it.
  • Cleaning up your credit report - While some debt relief systems can improve your credit score over time, no one can change your credit report. Negative information, like late payments or collections, stay on your credit report for at least seven years, by law.

Other Debt Relief Options

There are some legitimate debt relief companies out there. They will typically start by learning about your financial situation and going over your options. They also won’t charge you until you start to get results. Debt relief agencies are required by law to explain all the fees and conditions of their services before you make any agreements with them. They also need to estimate how long it will take to settle each of your debts, as well as the potential risks associated with their advice, such as discontinuing payments to a creditor.

You may also want to look into nonprofit credit counseling agencies. They can help you work with creditors and make a plan to pay down debt.

Staring down a large amount of debt can be scary, but scammers prey on fear. Don’t let anyone talk you into a program you haven’t researched and aren’t sure of. Check with your state’s attorney general or consumer protection bureau to see if a company has any complaints. You can look for reviews online.