Debt Relief Scams: How to Spot One in 2024
9 MIN READ
Published September 02, 2023 | Updated December 19, 2023
Knowing how to spot a debt relief scam is a crucial skill when pursuing debt relief options. If you receive a call from someone who promises to eliminate your debt quickly or tells you they can get you loan forgiveness through a new government program, you’re likely to believe them. These are signs of debt relief scams that are likely to prey on people who are deep in debt. In many cases, they’ll ask you for an upfront fee, and once you pay them, they won’t deliver on their promises.
3 Debt Relief Red Flags to Watch Out For
When you have a lot of credit card debt, personal loans, and payday loans, and are trying to find ways to get relief from the situation, the last thing you need is to deal with a scam. The Consumer Financial Protection Bureau (CFPB) offers insights into the common types of scams and how you can spot them. Learning more about the red flags can help you protect yourself. Here’s how to spot a debt relief scam.
1. Upfront Fees
If a debt relief company asks for an upfront fee, you’re likely dealing with a scammer. If you receive a call from someone representing such a company, ignore them and end the phone call.
Legitimate debt relief companies never ask for upfront fees. Federal rules prohibit these companies from collecting fees before they provide services. They must sign an agreement with you and deal with at least one of your debts before they can charge a fee.
2. Promises of Quick Fixes
When an offer seems too good to be true, it usually is. This rule also applies to debt relief companies. Debt relief is a long and challenging process, and if someone promises to erase all your debts quickly, they’re probably a scam artist. Companies that offer to repair your credit score or remove negative information from your credit report are also likely a scam.
Legitimate debt relief companies will offer you advice and set you up with a debt management plan, debt consolidation, or debt settlement plan where you’ll have to put away money for months to settle your debts. Scammers will guarantee you to get rid of your debt cleanly and quickly.
3. High-Pressure Sales Tactics
Debt relief scammers will pressure you to sign up for their plan quickly. They often use urgency and high-pressure sales tactics, such as telling you that enrollment is only available for a limited time. They use this tactic to force you to make a decision quickly, which is likely to be uninformed and may land you in trouble.
If you receive robocalls or scam calls pressuring you, hang up. When it comes to debt, do not make any decisions in the heat of the moment. Take your time to think clearly and weigh your options before you sign up for any debt relief program.
How to Protect Yourself from a Debt Relief Scam
Other than keeping an eye out for red flags, you can take other steps to protect yourself from a debt relief scam.
Research Debt Relief Companies
If you plan to seek help for your debt, research the debt relief company you plan to work with. You’ll find dozens of companies online with a simple Google search, so it’s important to compare them and ensure they are legitimate. Here are a few things to look out for:
- Ensure the company is accredited and licensed.
- Check reviews and testimonials on Google and Trustpilot.
- The company should have years of documented and positive track record.
- Ensure they’re open about the services they offer.
- The company should be transparent about their fees.
Check for Licensing and Accreditation
Legitimate debt relief companies are accredited and licensed. The state requires all companies to be licensed so that fraudulent companies will not be able to take advantage of consumers. Those who are dealing with debt are already in a vulnerable position, and companies offering debt relief services are in a position to manipulate them. This is why many states have licensing requirements.
Check the company’s website to see if they’re licensed in the state they’re working from. If you can’t find any information on their website, speak to a company representative and ask about their licensing and accreditation details to ensure it’s a legitimate company. You can also ask your state attorney general to check if the company has a license to work in your state.
Contact the Better Business Bureau
If you’re unsure about a company specializing in debt relief, don’t rely just on the information you find on the company’s website. Check with the Better Business Bureau instead. You’ll find licensing information for the company, customer complaints, reviews, and BBB rating and accreditation of the company on the website.
Pay particular attention to customer complaints against the debt settlement company on the website. This will give you an accurate picture of what past clients have to say about the company and if it’s worth hiring them.
Educate Yourself About Debt Relief
One of the best ways to protect yourself from debt relief scams is by educating yourself on what these services are and how they work. You’ll be better equipped to spot scams if you know how genuine debt settlement services, debt consolidation, and debt management plans work.
You should also take the time to learn more about federal and state laws that protect your rights as a borrower, such as the Fair Debt Collection Practices Act (FDCPA). The act prohibits debt collectors from calling you and threatening you falsely with legal action, discussing your debts with others, and harassing you with nonstop collection calls.
Create a Budget and Payment Plan
You may not always need professional help to manage your debts. In many cases, you can pay off your debts simply by creating a budget, reducing your expenses, and coming up with a plan to repay your debts.
You may also be able to work directly with your lenders and ask them to accept a repayment plan. You can even negotiate credit card debt and see if your lender is willing to accept a lump sum amount to settle your account instead of the entire balance.
Seek Help from Non-Profit Organizations
If you need help, consider getting in touch with a nonprofit credit counseling agency. They can help you get a better handle on your finances by budgeting, consolidating your debt, or enrolling you in a debt management program. A credit counselor will advocate on your behalf, negotiate with your lenders to reduce your interest rate or waive fees, and help you streamline your monthly payment.
Found a Scam? Here’s What to Do
If you’ve received scam calls or are already a victim of a debt relief scam, report it as soon as possible. Here are several things you can do if you have found a scam.
Report to the FTC
The first thing you should do is to report the scam to the Federal Trade Commission. The FTC can use the information you provide to spot trends, share information about what’s happening in your community, educate the public, and build a case against the scammer.
You can report the scam by calling 800-382-4357 or reporting the fraud to the FTC online. Tell them about what happened, what the scammer said on the phone, and if you’ve sent them any money. They’ll investigate and will let you know about the next steps.
Contact Your State Attorney General
You can also get in touch with your state attorney general’s office to report the fraud. The National Association of Attorneys General is a good resource to find out who your AG is and how you can get in touch with them. This is especially a good choice if you want to bring the action to state court. Alternatively, you can also contact your state’s financial regulator, district attorney, or the local police if you think the fraud occurred locally.
Consider Legal Action
If you’ve already sent a considerable amount of money to a scammer, it may be a good idea to take legal action when possible. When you report the scam to the FTC, they’ll provide you with more information on whether it would be possible to take legal action.
Additionally, you should consult a lawyer and report the scam to the police. A lawyer would be able to provide you with advice on how to take legal action, what type of documents or information you’ll need, and the cost and time involved in the process.
The Bottom Line on Debt Relief Scams
If you’re considering debt relief, you’re probably in a financially vulnerable position. Unfortunately, scammers use your vulnerability against you. If you know the warning signs of a scam and ways to protect yourself, you’ll be one step ahead of them.