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:
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 the 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 a 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 the 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.)
6. Don’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?
7. Don’t research the debt settlement company at the GetOutOfDebt.org
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.
8. Don’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 …)
9. Don’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 loophole in the law that allows them to continue charging upfront money even if they never perform the service. They say “loophole”, 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 loophole theory will hold up in court is their problem. Since you aren’t going to get any benefit by giving them your money up front, don’t make it your problem if they eventually get shut down by regulators.
10. Don’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 “loophole” 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.
Who didn’t teach you (or this author) how to not write in the negative not all of the partial time? Sooo not un-confusing!
I foolishly signed up with a company called finance solutions today and after I did the deed a lightbulb turned on and now they have my liisence information and bank account. The paperwork said I have 5 days to get out of the contract so I am gointo act now and cancell. I am going to close the Checking account and move my funds and auto deposits to another account
I am paying Activy Solutions 428.00 a month to get out of debt since I lost my job. I just today discovered none of this money goes to my cc companies so I am going to stop paying them. Do you have any ideas on a honest company that I could that could may help me get the interest lowered and get my debts my debts reduced or consolidated. I didn’t understand that I was paying all the money to them, the salesman just said he could get me out of debt in 18 months. I can’t file bankruptcy and most of the debts were to help my sons since their father never paid support and died from drinking. My now husband does not know about the debts and I am trying to get them paid without him finding out.
Feel free to head over to my site and schedule a free consult with me.
I can go over your situation with you and give you some better options to look at.
Hi Donna – At this point you may want to explain what happened to your creditor, and see if you can work out individual arrangements with each. Bankruptcy is the best option, but you said you can’t go that route. You might consult with a credit attorney.
Hi Damon, I find your article helpful. I just got off the phone with a debt consolidation company called Actify Solution, don’t know if you have heard about them. They promise to take care of my debt of $39,000 and have me pay a monthly fees of $851. I am very skeptical, because the agreement say they are only consolidating inaccurate amount reported to the credit bureaus. These are debt that I actually owe, so how are they going to just get the creditors to write it off? very worried, I have 5 days from today to cancel and I feel like I should cancel it. Please advice. I just check them out on BBB and all I see is good review . Thanks
I am not personally familiar with Actify Solutions however, based on your description and a quick google search, it seams they are trying to sell you a debt validation scheme. I won’t go so far as to call it a scam because I don’t know exactly what they are telling you. However in my experience, what the sales guys or gals are usually saying does not match up the the reality of what will be happening.
In reality, debt validation is meaningless and is just something that sounds good in a sales pitch. They are just hoping to run out the SOL clock and hope you don’t get sued, then they will call that a victory. The biggest problem is that these types of companies never seem to fully explain what their process is. Consumers just tend to get the rosy version of what they hope will happen. Just because Actify tells you that a debt is not valid because the company didn’t “validate” the debt according to whatever arbitrary standards Actify has is totally meaningless. That creditor can still sue you over that debt whenever they want. Then you will be the one standing in front of the judge trying to explain why the debt isn’t valid and how you purchased stuff with that card but are now saying the debt doesn’t exist. Not a fun situation for you.
Before you commit to letting them babysit 851 dollars a month for you, I would be happy to review the contract and explain what their plan actually is. Then you can determine if what they are going to do is what was explained to you and whether or not you would still like to hire them after having all the information.
It is very likely I will have some better options I can suggest to you once I more fully understand your situation.
You can reach me through my website at DamonDay.com
Click on the “talk to Damon” link at the top and submit a help request. I will respond with instructions on how to send me over the contract for review and we can discuss it early next week before your 5 days is up.
Honestly though, if they are only giving you 5 days to cancel, I would cancel on that principle alone. I promise, if you later decide you want to hire them, they would be glad to take your money again. You shouldn’t be forced to rush a major decision like how to best handle resolving 39K in debt and if they are forcing you to do that in only 5 days, it is because they are afraid you will find out that it really isn’t a great deal for you.
So my 2 cents is cancel now, then take your time, review all options and go from there. There is no reason for you to be under this pressure.
Damon, I had a talk with Actify yesterday (Oct 20). Their pitch is that after about 90 days of non-payment on a card, the credit card company sells the debt to a collection company. But they are legally prohibited from also including personal information and the signed CC contract. Actify says they demand to see that legal information. If no reply (they say in 95% of the cases), they demand the debt collector drop the file, and the 3 credit companies remove the debt. They call this an “invalidated debt.”
I’d like to see your reply to Ken after you reviewed his contract, or get your reply to this note. Thanks.
Well, I guess the best way to answer would be with questions.
1. What law says that a creditor must sell a debt to a 3rd party within 90 days?
2. What law prohibits creditors from selling a debt to a collector and including personal information sufficient to legally collect on the debt?
3. What is the definition of “Validation” and what laws or court cases do they rely on to support their definition and subsequent actions a creditor or collector must take when receiving a letter?
4. If their fees for this “magic” debt elimination process approach 40%-50% of a clients debt (which I have heard from some people that they do) then why not just settle the debts rather than just hoping a creditor doesn’t file a lawsuit?
5. What if a creditor doesn’t sell a debt to a third party but instead sues the debtor directly?
Just some things to think about.
Damon, this link goes with my reply of a few minutes ago about Actify Solutions. This site, not theirs, explains exactly what they do and their rationale for why it works. Please let us all know what your evaluation of it is. Thanks.
Hi Damon, I too have just experienced the Actify Solutions Credit Consolidation experience… I am glad that I read the comments regarding Actify solutions.. I also have been trying to clear up some debts, about $20,000. Only 1 credit card company I have is in collections…. After talking to Actify solutions, They incouraged me to let my other cards go into collections and group all of them into one consolidation.. Monthly payments will be $509.23 for 30 month…
after figuring the total payments will a total of over $15,000 dollars. I realized my total debts could be paid off in 24 months and less than the $15,000 over a 30 month period… I couldn’t understand why I should let my other accounts go deliquent when I am able to keep up with them and not have them go as a negative mark on my credit… Thanks for your info.. I have to find a solution besides Actify Solutions…. thanks again John
Did we ever get clarity from your followers as to Actifiy Solutions? I was recently in touch with one of their representatives in order to clear up my mother’s credit situation
Yes, to clarify. Debt validation is nothing but smoke an mirrors. These programs rely on the fact that consumers do not understand how debt collection works.
I don’t have time to get into the specifics, but you would literally be better off, not paying your creditors, sticking your head in the sand and hoping you don’t get sued than you would be by hiring a debt validation company and paying them a 30% to 40% fee to send BS letters that the creditors will just ignore.
By the way, why in the world would you pay a company a fee of 30% to 40% of your debt on the hope that they are going to magically make your debt go away? If you could save up that kind of money, you could settle your debts with the creditor and move on in life. On that reason alone, debt validation is a bogus promise.
I see all of your comments are from 6 years ago, so I hope you actually get to see my comment.
I am currently just over $50,000 in unsecured credit card debt and was paying on time until 3 things happened: 1) The interest rates skyrocketed(they were 0% for 1 year); 2) my cash reserves depleted to nothing, and 3) my income dried up. Now, I have no ability to pay and am working with arthritis and mowing local neighborhood lawns for cash. I enrolled into a debt negotiation plan in June with a company called “TheDNSway,” or Debt Negotiation Services in Boynton Beach, Florida. I just have an uneasy feeling about it because I used to work in collections for a major bank and know how things work. I believe I can settle with all 3 banks myself, but I don’t have the funds at this moment with which to settle. I am seriously stressed out about this. Any information would be helpful regarding DNS and my situation. Thank you
Yes, I see the comments because this site shoots me an email if someone leaves a comment on it. My short answer would be that you should likely cancel the debt settlement program for one very important reason.
“Your income dried up and you are having to mow lawns to survive.” You said yourself that you don’t have the funds to settle the debts. So the very last thing you should be doing is taking what little money you have and letting a settlement company babysit it for you. You can babysit your own money.
Of course the sales person is not there to tell you that there are likely more important things you should use your limited income for like food or rent. So they will be happy to enroll you and take your money.
If you think you would like to settle the debts, then you should take the money that you would send the settlement company and save it yourself for now. Then if your situation improves and you have the money, you can then decide if you want to settle your outstanding debts. (You don’t have to decide that now). You can always hire that company in a year from now, I promise they will still take your money, or you can try your hand at negotiating with the creditors directly.
My concern is that a Bankruptcy might be a better option for you. It would certainly be cheaper. However, without knowing your specifics I couldn’t tell you whether or not it would be.
What I can tell you for sure though is that you get zero benefit by sending money to a settlement company when your current financial circumstances do not point to settlement as a good and viable option for resolving the debt.
Nice Post and I would like to add
#11) Don’t reconsider using a debt settlement company
#12) Don’t bother to contact your creditors before signing up for debt relief
#13) Don’t ask for former clients references
#14) Don’t listen to your inward self to walk away from what is being offered to you.
Hello, Damon –
I’m a business attorney and a litigator. I also teamed up with a bankruptcy and consumer rights attorney to help cash strapped people fight back against loan modification and credit card relief and debt settlement scammers. This is a largely underserved segment of the legal market, and it’s very rewarding work. Getting these people a refund from these ripoff artists really makes a difference to them.
Thanks for the great article.
That is awesome Mark, I sent you a request to join my network on LinkedIn. Hope it was the correct Mark Walters 🙂
Yes, for the most part you are correct. The industry as a whole is pretty shady. There are some good people in it, but for the most part it is pretty shameful.
Please contact me though my website. I am always on the lookout for advocates who can help support consumers who get taken advantage of by debt relief companies. I have consumers contact me for help getting refunds all the time and it is always nice to have a good attorneys on speed dial if a little “legal persuasion” becomes necessary to convince someone to do the right thing.
What area of law do you practice?
Sir. I would appreciate the opportunity to speak with you regarding my debt negotiation plan I started with Curadebt a little over a year ago that was handled by Consumer Affairs Law Center. I recently found out that after paying them monthly that they never even attempted to negotiate with any of the creditors. I didn’t find this out until I received a law suit in the mail just recently from one of my creditors. This is a total scam and I believe since they never did any negotiations with any of my creditors I should get my “negotiation fees” back. Thanks for any help or advice you can offer. Justo Vega
I am sorry to hear about your experience. Unfortunately it is very common in this industry for consumers to get blindsided with a lawsuit only to find out the settlement company wasn’t doing what the sales person said they would be doing.
While I am sometimes successful at assisting my clients in getting money back from debt settlement companies who have not performed the service that was sold, there is no guarantee they will voluntarily give it to you.
If you would like to review it with me please contact me through my website at DamonDay.com
I will review your original contract with Curadebt and then we can take a look at your overall situation, including this lawsuit and determine what your next move should be.
The credit card relief and debt settlement industry appears to routinely charge fees that violate state and federal law. In the state of Washington, where I practice law, consumers can fight back and obtain a total refund of the fees paid to these scammers. Consumers should fight back.
Great post Damon. Thank you
Thanks so much for the compliment. I am glad you liked it.
Thanks for publishing my article and taking the time to make it fancy with big letters and greyed out boxes 🙂
I am a consumer defense/debtor attorney. My firm qualifies as a debt relief agency.
I have done all types of consumer defense. ( Foreclosure,credit,debt, bankruptcy etc)… I work with my clients-and insist we meet face to face.
I understand many times their cash restriction and predicament. I NEVER CHARGE AN UPFRONT FEE until my first letter goes out…I will say that I try to do everything to not do a bankruptcy. Because the courts have made it harder for clients and attorneys.
I have seen some of these debt settlement contracts that charge as much as $900 per mth ( most of that goes to fee payment).
Help people with payments, my fees will average $40 per mth ( some as low as $29.00) some higher. But my goal is to knock out as soon as possible.I work closely with them and inform them of status…oh and by the way, I will defend them in court. Many of these credit companies are not “scared” of settlement companies. But when credit companies get letters from the attorney with name on letterhead-they take notice. I tell people that ANY ATTORNEY WILL SEE YOU FOR FREE FIRST VISIT!
I love what I do and get referrals left and right, now I will see about going after some of these debt “relief” companies.
P.S. Believe or not there are people that just absolutely refuse bankruptcy even though it is there best option…..
I want to know more about your company. Do you have an email adderss or phone number that I can call? Thanks!
I signed up with Actify Solutions and would like to talk to you about getting a refund from them with your help. I have paid two months of around $1500. Thank you very much for posting on this site to help us get a better understanding of our options.