If you are thinking about working with any debt settlement services, it is very important that you do your homework and find out what exactly you are getting yourself into. Credit card debt negotiation is usually a bad option for dealing with your debt, and you also run the risk of falling victim to debt settlement scams.
We have already addressed many of the issues surrounding these companies in other articles. If you haven’t already, be sure to read about the drawbacks and hidden costs of debt settlement.
Even the best debt negotiation service can cause major problems for you. After paying hundreds or even thousands of dollars in fees up front, your creditors may still not get paid or agree to settle with you.
If this happens, your credit will be severely damaged and your balances will have ballooned. You will owe even more money and you may even face the possibility of being sued.
When your accounts actually do get settled, you may have to pay taxes on the forgiven debt. These are some of the drawbacks to think about even if you do not fall victim to any debt relief scams.
Avoiding Scams
While all of the above consequences can be pretty bad, things can actually be even worse. Some of these so-called debt relief companies are actually blatant scams.
Some of these crooked organizations, such as Hess Kennedy and Allegro Law, have already been seized and shut down by the authorities. Unfortunately, many others continue to operate and even use deceptive advertising practices to convince customers of their legitimacy.
How can you avoid these companies? The first step, as usual, should be to check with the Better Business Bureau. A poor rating and several complaints with the BBB is usually a dead giveaway that you should avoid a company.
However, many of these scam services will shut down and re-open under a new name. This means that even a company with a favorable BBB rating may not be one you can automatically trust.
Search for reviews and recommendations on the company, and you may want to check with the FTC for any bulletins or warnings about the industry. Ask lots of questions about the fee structure and how exactly the service will work.
If the representative of the company pressures you, gives you vague answers, or gives you false information, this should be a red flag. You should also be sure to closely and carefully read any written contract or documents you receive related to the service.
You may even wish to have a friend or professional that you trust read over any agreement or contract before you sign.
However, the best way to avoid debt settlement scams is to refuse to deal with any debt settlement companies at all. Settling debt is rarely your best option, and if you absolutely decide you must, you can actually negotiate a debt settlement on your own.
Better yet, you could speak to a qualified, knowledgeable credit counselor who can take a look at your situation and help walk you through what your best options are. An accredited credit counselor should be able to help you find a legitimate solution to your debt problems.
In addition, Daniel is a Certified Grant Specialist through the National Grant Writers Association. Daniel gained subsequent training by completing programs with the Institute for Financial Counseling. He is a Certified Credit Report Reviewer and an Identity Theft Prevention Specialist.
Daniel was formerly Vice President of Personal Financial Network, Inc. and is currently Director of Finance at Fiscal Progress, Inc.
- Beware of Debt Settlement Scams - August 31, 2010