High debt can be a beast, taking huge bites out of a household or personal budget and destroying any chance of financial wellness. To make matters worse, being in high debt can mean being stuck in a desperate cycle that never ends, as payback is often accompanied by high interest rates that make it nearly impossible to get ahead. Unfortunately, scammers know this well, so they target victims with debt relief scams to get at their money.
Here’s what you need to know about debt relief scams and how to avoid them.
How the scams play out
Debt relief scams target consumers who may have significant levels of credit card debt using any, or a combination, of the following false premises:
- Debt repair service that greatly increases their credit score in a short time
- Service to remove negative credit report information
- Student loan debt reduction
- Promise to reduce credit card interest rates
The target, who is desperate to get rid of their debt, will pay any price for these services. The scammer demands a non-refundable upfront fee before getting started and happily pockets this money. The scammer then fails to come through as promised, leaving the consumer even deeper in debt.
In a variation of this scam, the bogus debt relief company will collect payments in small increments, promising to bring the target’s credit score up and their debt balance down over a short period of time. The target will continue making payments to the fictitious service until they finally smell a scam, which might ultimately cost them thousands of dollars in losses.
Debt relief scams can be difficult to spot because there are legitimate debt relief services available for debt-straddled consumers. However, there are several signs you can watch for to let you know when you’re being targeted by a scammer. Most importantly, it’s crucial to remember that overcoming a significant amount of debt takes lots of time.
Look out for these red flags to help you identify a debt relief scam:
- The service guarantees to bring your credit score up by a specific amount of points in a short amount of time.
- The service promises to get rid of factual credit report information that’s on your credit file.
- The service demands an upfront payment.
- The service claims to be affiliated with a credit card company, but the card company does not recognize the service.
- The service advises you to cut off all communication with creditors.
The do’s and don’ts of credit repair
If you’re looking for a legitimate credit repair service, these tips can help.
- Research the debt relief service you consider using very thoroughly. Look for a secure site, a phone number and street address on their website, as well as positive reviews from past clients. You can also do a quick Google search of the company’s name and the word “scam” (such as, “ABC Debt Saviors Scam”) to see what the internet has to say about them.
- If the service claims to be affiliated with a credit card company, give the card company a call to see if this claim checks out.
- Ask for a clear explanation of all fees and conditions of the service before signing up. This includes the timeframe for the service, the total you can expect to pay and any risks you should know about before using the service.
- Consider other options for paying down debt, such as credit counseling, negotiating for a lower interest rate from your creditors or taking out a [debt consolidation loan] [or personal loan] from Advantage One Credit Union.
- Never pay an upfront for a debt relief service.
- Don’t believe a service that guarantees to bring up your score by a certain amount in a specified timeframe. There are no guarantees when it comes to debt relief.
- Don’t agree to let a company enroll you in a debt relief program without fully knowing any details.
- Don’t believe a service can get rid of negative information on your credit file. There are laws dictating how long specific information must stay on your credit report, and a debt relief service can’t change that.
- Your Turn: Have you been targeted by a debt relief scam? Share your experience in the comments.