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Be Wary of Debt Relief and Debt Settlement Companies

Debt settlement caption on blue key on keyboard

Being deep in debt can cause us to feel desperate for help. These feelings of desperation don’t often enable us to make our best decisions, and they can even make us susceptible to scams that prey on these feelings by offering an easy way out. Unfortunately, if it seems too good to be true, it probably is. If you’re considering contracting with a debt relief or debt settlement company to help you get out of medical or consumer debt, be sure to research the company thoroughly to be sure you’re not at risk of being scammed.

How debt settlement companies work

Even when operating properly, debt settlement programs can be risky. These companies typically offer the service of negotiating with your creditors to settle your debt for a lump sum which is less than the full amount of your debt. You will be required to make payments into a special account managed by a third party, typically for at least 36 months, if not longer, in order to fully pay off the lump settlement. Many debtors cannot afford to keep up with these payments and will give up along the way. During this period of payment into the lump settlement account, the debt settlement company will strongly suggest you not make payments to your creditors directly. This can have very bad consequences for your credit score as a result of late fees or penalties imposed by your creditors, or even a lawsuit based on the debt you owe.

Signs you’re dealing with a fraudulent debt settlement company

Debt settlement companies know that they’re trying to appeal to people who are at the end of their rope and in immediate need of help to keep paying their bills. While some debt relief and debt settlement companies operate legitimate businesses, many take advantage of the vulnerability of someone in serious debt to bilk them out of thousands of dollars in fees. Some companies promise to settle your debts for a fraction of what you owe, even before they have obtained an agreement to settle from your creditors. Others don’t explain the risks entailed in participating in the program. If a debt settlement company makes any of the following promises or imposes the following requirements, reconsider working with the company:

The company requires that you pay fees before any of your debts are settled. You should be prepared to pay for these services only after the company has reached one or more settlement agreements with your creditors.

The company promises to eliminate your unsecured debt.

The company does not explain the serious risks entailed in no longer making payments on your debts. These companies are obligated under federal regulations to make certain disclosures regarding the risks of nonpayment, and you should be wary of a company that fails to follow these rules.

The company promises that you will only pay a small fraction of what you owe. Debt settlement companies don’t know whether they will be able to negotiate a settlement on your behalf until after they communicate with your creditors.

For assistance with issues relating to consumer debts and debt relief, contact a knowledgeable, compassionate, and effective Germantown bankruptcy and consumer rights lawyer at the Haeger Law Firm for a consultation, at 888-463-3520.