Over the past few years I have heard non-stop stories from consumers who were taken for costly rides by debt settlement scams. While it is true that there are a few good and well intentioned programs available that provide real debt solutions, my experience shows that a vast majority of these outfits are simply money grubbing nightmares for cash strapped consumers.
The debt relief world can be a very confusing place, especially when people are in a seemingly desperate financial situation. With that in mind I would like to shed a little light on this industry and present:
10 Stupid Simple Ways to Get Burned by Debt Settlement Scams.
1 Don't research every option before hiring a debt settlement company. You need to explore consumer credit counseling, debt consolidation loan options, credit card debt settlement, bankruptcy, and many other variations of those strategies, including working directly with the creditors and even just potentially ignoring the debt. (Yes, sometimes that is the best option)
Nobody cares more about your financial situation than you do. Roll up your sleeves and do some research. Debt relief scams are everywhere and you must be able to recognize when a sales affiliate is telling you the truth and when they are bending it like Beckham.
2 Don't get a second opinion from a trusted source. Many consumers fail to get a second opinion because they are embarrassed and don't want friends or loved ones to know about their financial situation. It is this very reason that most debt settlement scams can get away with what they do for so long. Not only do people not ask for independent advice before they enroll, but they are also reluctant to tell anyone when they get burned.
At minimum you should speak with at least 1 independent voice that is knowledgeable about your financial situation and the general options available to you. For many, this can be a very emotional time and having an objective sounding board to provide feedback is essential.
3 Don't remind yourself that the sales affiliate is likely no Dave Ramsey. We have a tendency to seek and act on advice from people that tell us what we were hoping to hear instead of what we really need to hear. If the program sounds like Manna from Heaven, just be sure to filter that information through the knowledge that debt settlement sales affiliates typically do not have the background to objectively advise you of the best strategy to resolve your financial situation, nor are they paid to do so.
4 Don't consider several companies before making a final decision. If you think your creditors call you all the time, just wait until you have a consultation with a sales driven debt settlement company. They want pen to paper on that contract before you even get off the phone. Like in every other industry, no two companies are the same. Some are good, some are bad, and some do nothing but collect your fees. It is important for you to interview several companies to compare and contrast the things that are important to you.
5 Don't do a Google search. Google is to a debt relief scammer what Kryptonite is to Superman. Never before has it been this easy for consumers to share information and experiences with millions of others. At minimum you should type a company's name into Google and look through the first few pages. You can also do searches for things like (company name complaints) and (company name scam.)
More from GFC, Below
6Don't check with the BBB. How many complaints do they have on file with the BBB? Were those complaints resolved? What is their client to complaint ratio? If they have 5,000 clients but only 10 resolved complaints in the last 3 years, how would that compare to a company with the same number of complaints but only 200 clients?
7Don't research the debt settlement company at the GetOutOfDebt.org website. My friend Steve Rhode runs the site and teaches you how to get out of debt for free. He is without question, the “go to” source for researching debt settlement scams. Consumers constantly write in to share their experiences or ask him to research a debt settlement company they are considering. If you do a search on his site and you don't find a review of a specific company, you can just ask him to do one for free.
8Don't read the contract carefully. If the sales presentation was indeed your Manna from Heaven, then don't be surprised to find an angry Devil in the details. Often times the sales affiliate will tell you what he thinks you want to hear and then the contract will attempt to CTLA (cover their lying …)
9Don't question them if they attempt to illegally charge you fees before they settle your debts. The debt settlement scams had gotten so bad that the FTC finally stepped in and made it illegal in October 2010, for debt settlement companies to charge fees before they settled their client's debt.
Since the passage of that law, many scammers have left the industry. However some have stayed and continue to illegally charge fees to consumers before the debt is settled. Most often they identify themselves as “law firm” models. They claim to have found a legal loop hole in the law that allows them to continue charging upfront money even if they never perform the service. They say loop hole, I say total scam.
Either way, why would you want to pay a company all your fees upfront when you can look at other companies who will actually perform the service before charging you? Whether or not their loop hole theory will hold up in court is their problem. Since you aren't going to get any benefit by giving them your money upfront, don't make it your problem if they eventually get shut down by regulators.
10Don't politely decline their offer to meet with you face to face. If a sales associate from the law firm of Doowe, Cheatem and How (fictitious name) pitches you on their program for 45 minutes and then asks to set up a face to face meeting, you can bet dollars to donuts that they charge upfront fees and are of the “loop holer” persuasion mentioned in number 9.
There might be a rare exception for a small local firm, but for the most part, the face to face meeting is a dead giveaway. The “loop hole” theory is that the sale was not made during the 45 minute sales presentation with the sales affiliate, but with the Notary or local Paralegal they sent over to get the papers signed. An observant person might question the 45 minute call where the selling and convincing was actually done. There is that Devil in those details again.
So there you have it. 10 stupid simple ways to get burned by debt settlement scams.
Reader Take Away: