Don’t get “trapped” by offers that are too good to be true
Photo by: John Gardiner (Stock Exchange)

Debt settlement and debt consolidation are becoming popular options for hard-working people who are suffering from a debt burden they cannot shoulder.

Debt settlement involves negotiating with creditors for favorable terms in a good faith effort to pay down debts, leading (ideally) to reduced payment and principal amounts.

Unfortunately, hundreds or even thousands of scammers have hung a shingle claiming “debt settlement” services on the internet. These unscrupulous types not only give legitimate financial professionals a bad name, but provide none of the benefits they promise, leaving customers worse off than when they started.

In this post, we’ll provide some tools for spotting debt settlement scams.

Know a Scam When You See It!

Here are questions to ask before getting involved with any debt settlement company:

Have they attracted any complaints? In the financial world especially, it’s important to work with known professionals you can trust. Though debt settlement is possible, there are so many scammers that honest businesses can be drowned out. Before you begin working with a debt settlement company, search the Better Business Bureau for evidence of complaints. Less official, but still critical: pull up your favorite search engine and try out the name of the company, followed by the word scam.

How long have they been in business? As personal debt has exploded, so have scams. Scammers prey on those who are most in need, and because they have no intention of delivering on their promises, they can come and go under multiple names without working to establish a reputation. Be wary of companies that have not been in business long, or that neglect basic issues you’d expect from any other business; for example, a physical address. Would you trust a business that can afford to advertise on TV, but doesn’t want you to walk through the front door of their office?

Do their offers sound reasonable? Debt settlement can take some time, and though creditors would rather collect some money than none at all, glitzy up-front claims about cutting your debt by 50% or more in days should raise a red flag. It can take a while (and a lot of honest effort) before debt settlement issues are resolved and your financial situation becomes comfortable. Magic bullet solutions sell, but they don’t get results.

Do they ask enough questions? Scammers are only interested in getting money, and they don’t care how they get it, or from who, as long as they can keep doing it. Legitimate tax attorneys and other financial professionals aren’t afraid to ask uncomfortable questions that might, at first, risk turning potential customers off. But for a professional, some basics have to be established: the origin of the debt and whether you legitimately owe it are foundational. If you don’t have to do anything to qualify for debt settlement except make a payment, beware!

Are they credible? Are the claims of the company backed up by expertise from real, live financial counselors and tax attorneys? Some “credit counselors” have smoke-and-mirrors certifications, from companies that are themselves less than trustworthy, rather than hard financial and legal experience to negotiate on your behalf. Even your own creditors might be willing to disclose whether a company is legitimate if you ask – though, of course, you should take this with a grain of salt.