If you’re not aware of debt relief, this is where you hire a company to negotiate with your creditors to get your debts reduced – usually for pennies on the dollar. This can be an excellent way to get debt paid off, although not everyone will be a good candidate for debt relief (also called debt settlement). For it to be a good option, you must owe more than $7000 and be at least six months past due on your loan and credit card payments.
When done right
If you choose an honest and ethical debt settlement company, this should be a good solution for both parties. You would be required to pay just a fraction of what you owe, which would be good for you. And it’s good for your creditors in the sense that they get at least something vs. the nothing they would get if you were to file for bankruptcy.
Feds cracking down
The problem is that not all debt settlement companies are honest and ethical. The Consumer Financial Protection Bureau (CFPB) believes that some debt settlement companies are basically scams that prey on the most susceptible of us. For example, the CFPB recently lodged a complaint against American Debt Settlement Solutions (ADDS) of Boca Raton, Florida alleging that it “misled consumers across the country and charged illegal upfront fees for debt-relief services that rarely, if ever, materialized.” For that matter since ADDS was founded in 2008, it said to have obtained no debt settlements for 89% of its customers. And while they put close to $10 million into ADDS accounts, the company paid less than $2 million in settlements and charged clients approximately $500,000 while misrepresenting what it could do for its customers.
Other debt relief agencies have been targeted
The CFPB has also targeted other debt relief agencies including Mission Settlement of New York, and Premier Consulting New Jersey for engaging in deceptive practices. Plus, attorney generals in five states have filed an action against Payday Debt Solutions, Inc. for charging upfront fees before negotiating any settlements, which is not permitted by the FTC’s Telemarketing Sales Rule and the Dodd-Frank Act.
How to keep yourself from being scammed
If you are having a considerable problem with debt and are thinking that debt settlement might be a good option, there are things you can do to protect yourself from dishonest and unethical companies. First, be sure to check with the Better Business Bureau to make sure the company has been accredited and has a good rating. You should also go online and look for reviews. While almost all debt settlement companies have some bad reviews, the good companies will have many more good reviews than bad ones.
Don’t believe inflated claims
There’s an old adage that if it seems to be too good to be true it probably is. If you talk with a debt settlement company that makes unrealistic souding or inflated claims about what it can do for you, it’s probably not be trusted. Also, make sure you get everything in writing. As former Pres. Ronald Reagan once said “trust but verify.” Don’t rely on what you are told. Get everything in writing and review it carefully before signing up with any debt settlement company.
Pay nothing upfront
Stay far away from any debt settlement company that asks for upfront payments. As noted above, the Telemarketing Sales Act does not permit this unless the money will be used to pay an attorney to handle your debt settlement.
Always follow up
If you do contract with a debt settlement company make sure you constantly follow-up with your creditors to make sure that your debts are actually being settled and paid off. You should also be sure to you ask for copies of every settlement letter – again so that you will know your debts are actually being settled.