How to Avoid Debt Consolidation Scams
Companies that promise debt relief, credit consolidation, or any other sort of “quick fix” solution are often deceiving vulnerable individuals. Their practices commonly tread the line between illegal acts, and the FTC regularly prosecutes companies for going over that line.
Unfortunately, spotting a debt consolidation scam is not always easy. Those who are the most vulnerable are in the direst state, and they are intentionally misinformed so that someone else can profit. Individuals are told exactly what they want to hear: that their debts will go away, almost magically, without having to file bankruptcy.
The bottom line is that any company promising debt relief should have their agreement analyzed by a qualified and experienced Albuquerque financial law attorney.
If you have any questions about debt consolidation or debt relief offer, or you want assistance determining the best way to get out from under bad debt, New Mexico Financial & Family Law can be here for you. We can counsel you on your options and help you determine why a workout agreement or bankruptcy is always a better alternative to signing your debt over to a scammer.
Call (505) 503-1637 or contact us online to schedule a no-obligation consultation that may come at no cost to you, depending on your circumstances. Getting out of a bad agreement is harder than getting into one, so take a moment to consider your options before it’s too late.
Most Private Debt Consolidation Companies Charge for Something You Could Do Yourself for Free
One of the worst consequences of being in severe debt can come once the debt holder decides to “do something about it” by reaching out to an illegitimate “debt relief” program. In truth, many of these programs are businesses, and they make their money by purchasing debt from creditors (often at a substantial discount) and then using this debt as leverage to trap the debt holder in a cycle of fees, payments, and other unfair practices.
Debt holders should be aware that the only services most companies can provide can also be used by the debt holder at no charge.
Negotiating a payment plan, arranging a lump sum debt settlement, or requesting agreement modifications can all be done yourself. Hiring an attorney is the best way to ensure that these negotiations are based on sound legal reasoning and that they are in your favor.
You can also reach out to credit counseling services, but be sure that the organization you work with is a nonprofit certified by the National Foundation for Credit Counseling (NFCC). Currently, there is only one group certified by the NFCC in New Mexico.
So, instead of looking to a company you heard on the radio, reach out to credit counseling services, CPAs, or financial attorneys who are legally obligated to hold your best interests in mind.
What Are Legitimate Debt Relief Solutions?
For the most part, there are only three real solutions that can be offered by a company advertising debt relief.
- Debt Settlement — You can offer to pay a lump sum to remove debt, often at a lower amount than the total debt value. This lump sum may be paid at once or through a payment agreement.
- Debt Consolidation — Debt consolidation is a loan. The loan provider pays off all your debts and then rolls the total amount into a new, single loan designed to make repayment easier. Always make sure that the interest on this loan is advantageously low.
- Bankruptcy — Bankruptcy is the only legal way to discharge a debt. Many “counseling” or “debt relief” agencies are just assisting you with filing bankruptcy while charging high service fees.
Note that these three services can all be provided by a lender, counseling service, or attorney. You will typically not hear any of these three advertising on the radio or online, but their services can provide the guidance and, sometimes, the relief you are looking for without getting locked into a predatory agreement.
It bears repeating that there are very few legitimate service providers out there who promise debt consolidation or debt relief through advertisements or amazing-sounding pitches. Getting rid of debt is not easy, and going for the easiest route can often lead to more trouble before bankruptcy is ultimately filed.
How to Spot a Debt Consolidation Scam
Several telltale signs indicate that a service provider is trying to scam you or lock you into an undesirable agreement.
They Promise Something That Sounds Too Good to Be True
You will never be able to settle your debt for “pennies” on the dollar, and the only way to make debt “disappear” is through bankruptcy. Anyone who takes financial relief seriously would never promise an easy fix to get out of debt. Be wary of any promises of discounted debt, easy relief, or worry-free payment agreements.
They Ask for Payment Up Front
You should only pay for a service you have received. Yet, many companies will ask you to pay fees up-front before they begin working to consolidate or settle your debt. This practice is, in fact, illegal in most instances according to the FTC, yet many companies still try to go this route through loopholes or by openly declaring that they are a for-profit operation.
They Hold Your Payments Before They’ll Settle Your Debt
Debt settlement service providers often want you to pay them regular installments with the promise that this money will eventually go towards your lump-sum settlement agreement. What’s really happening is that these companies are forcing you to save up your money and charging you for the pleasure. While it may be common to have the debt settlement amount in escrow before a settlement agreement is finalized, you are better off waiting until you have the amount in full before reaching out to a for-profit service provider.
You’re Told to Stop Contacting Creditors or Stop Paying Your Bills
The only reason to stop talking with creditors is that you have petitioned for bankruptcy and have been granted an automatic stay by the court. In any other situation, you do not have legal protections that will allow you to simply ignore creditors.
Not paying your bills is even worse. It will lead to late fees and consequences like repossession, utility shutoffs, or foreclosure. Many debt settlement companies promise that you can simply ignore your debts while you save up the settlement amount, but this is a terrible idea since it only compounds your obligations.
It Guarantees Results Like Debt Elimination
Again, the only way to legally eliminate debt is to fulfill the payment agreement with the creditor or to complete bankruptcy. Even if a company has in writing that your debt will be eliminated, this is not legally binding in the same sense that a Chapter 7 debt discharge has.
It Touts a “New Government Program” to Bail You out of Debt
If there is a government program for debt relief, it is likely a way to delay payments, delay interest, or reduce payments temporarily. In almost no case will there be a program that simply forgives you of debt, with very few exceptions.
In any event, any government program can be accessed freely by any individual without having to pay steep service fees. If you want to be educated about your options, seek counseling from the NFCC, or reach out to an experienced financial law attorney.
Before You Work With a Debt Consolidation or Debt Relief Company, Take These Steps
1. Review Your Options
There are many options available that won’t wrap you up in a predatory agreement. They include:
- Consumer credit counseling from an NFCC-approved non-profit
- Debt consolidation loan options from a bank or direct lender (not a broker)
- Credit card debt settlement agreements
- Ignoring the debt (in some cases, the best option!)
- Working directly with creditors
Once you find yourself in trouble, you might start hearing the ads and seeing the commercials for debt relief and think you have found the answer. Keep looking!
2. Get a Professional Opinion
Debt scammers prey on vulnerable people because they are embarrassed to discuss their debt, and they think the scammer will preserve their privacy. Instead, reach out to someone with professional skills and experience, like a lawyer or a certified accountant (CPA).
3. Recognize the Sales Pitch
If you do find yourself talking to a debt settlement company salesman just remind yourself that is exactly what you are talking to – a salesman whose commission depends on selling you on the program!
4. Do Your Homework on Companies Before Working With Them
A quick Google search can go a long way toward preventing heartache. You can look up reviews from Consumer Reports, Consumer Affairs, the Better Business Bureau (BBB), and with some companies, the FTC itself. You may even find that the company you were eyeballing is the subject of news coverage or, most concerning of all, an investigation by a regulatory agency like the CFPB.
Always compare and contrast reviews from multiple sources. Also, don’t be afraid to tell the company you might work with that you are “shopping around.” If it’s a scam company, get ready for the sales pitch of your life!
5. Always Have an Agreement Reviewed by an Attorney
The fine print on debt consolidation or relief agreement can literally take away everything you have in some instances. Be aware of what you’re signing by first having it looked over by a professional attorney with experience in financial law. In fact, since an attorney can provide many of the same services that these companies can, you should consider making that your first stop after speaking to a counseling non-profit — before you ever speak to a company that might scam you.
6. Walk Away If They Ask for Up-Front Fees, Make Outrageous Promises, or Make You Uncomfortable
Guilt is the unscrupulous salesman’s greatest weapon. We’re taught to feel rude if we hang up on someone or walk out of a high-pressure meeting, but in reality, you’re not the one who’s being rude in the first place! Don’t let feelings of guilt or a desire to seem polite prevent you from doing what’s in your best interest, which might be sprinting towards the door!
7. Reach out to New Mexico Financial & Family Law or Another Local, Recognized, Experienced Albuquerque Bankruptcy Attorney
We at New Mexico Financial & Family Law want to ensure that you get the best advice and the most accurate information. In many instances, we can provide a free consultation to individuals who would qualify for Chapter 7 and Chapter 13 bankruptcy. In any event, you will never be charged without first being given knowledge and providing consent. We are not interested in pressuring you towards any one solution but rather helping you determine the best solution for your given circumstances.
Schedule a no-risk financial case review when you call (505) 503-1637 or contact us online.
We are a debt relief agency and have practiced bankruptcy law for a combined 50 years. Our services include helping individuals and couples file for bankruptcy relief under the Bankruptcy Code.