Avoid debt settlement scam - Select the right company

Frauds and scams are a common happening today and increasing at an alarming rate in the financial sector. It is highly recommended that you decide on the right company when you go for a debt consolidation or a debt settlement program. You need to be very careful while choosing the right firm, which will provide authentic services instead of harassing you. A number of debt settlement companies claim to be non-profit; so don't get impressed with the word "non profit" which can be very deceptive.

To begin with, most people consider debt consolidation and debt settlement as the similar concepts. However, debt consolidation is completely different from debt settlement or debt negotiation programs.

Avoid Scam in a Debt Settlement Program:

Debt Settlement programs are usually quite expensive. When you enroll with debt settlement company, they charge you a lump sum amount as 'admin fees' to negotiate and handle your debt accounts. In addition, you have to pay a monthly service fee to these companies. However, the fees may vary depending on the type and amount of your debt.
The debt settlement company collects your monthly debt charges, which will be passed on to the creditors. The money is saved in a trust account for a while. In the meantime, the debt settlement company negotiates with the creditors on your behalf and come to terms with a particular reduced amount. Your money that is stored in a separate trust account over the months is paid to the creditors in full, once the entire amount has been accumulated.
This process may take several years depending on various factors. These can be the amount of money you owe to different creditors and also on your present financial capacity to repay your debts. In the meanwhile, your creditors can sue you and you may have to shell out extra dollars.
A major problem with the debt settlement companies is that, they don't ask your creditors to stop all interest, late fees and over limit fees from accruing. Thus while the settlement negotiation is on, it will result to continuous growth of debts as late fees and added interest rates. Thus if a creditor sues you, there is a high possibility that you end up with a larger debt amount.
If you don't land up with the right debt settlement company you are into complications once again. These companies do not reveal to you clearly how the debt settlement program works before you sign up a contract with them. Neither do you have a clear idea of the monetary transactions even after you enroll with them. You come to know of the entire transaction only when you have asked them several questions related to this matter.

Here let us take a numerical illustration as to how the debt settlement program operates

For example you have $20,000 in unsecured credit card debt to three credit card companies. You owe $6,000, $3,000 and $11,000 to three of them respectively. You agree to a 5 year plan where you pay $200 a month to the settlement company which will help you to be debt free in 5 years.

In the fourth month your installment of $200 is deposited in the trust account. In addition, the debt settlement company charges you $50 as service fees and deducts it from the monthly installment. Thus, only $150 is deposited in your trust account from the fourth month.

Usually debt settlement companies are able to negotiate your debt for about 50% of what you owe. If you owe $3,000 your creditor might agree to accept $1,500 (after 50% deduction) as payment in full. If you go by this rule it will take 10 months to pay off just one credit card. While keeping in mind your other creditors, it is understood that they'll be waiting even longer to get their money from the settlement company. Thus the debt amount of $6000 will be paid off in15 months, if your creditors agree upon 50% debt reduction and have the patience to wait for a long period of time.

The best way to pay off your debts within a short time is to negotiate well with your creditors. You have to convince them such that they don't keep on adding interest charges and late fees to your debt amount. Successful negotiation with your creditors can save you several dollars, which otherwise are required as fees to the debt settlement company.

In case you decide to opt out, most companies will allow you to cancel your account and get a refund of what you've paid, except the non-refundable admin fee and the monthly service fee. If you have the slightest doubt in mind about the credibility of their services, just fight it out without calling it a day.

Take the help of the Better Business Bureau or hire an attorney if you need serious help. You can take the help of Better Business Bureau and examine reports on hundreds of companies and choose the right one from amongst them.

You need to take very cautious steps before choosing the right firm. Enquire about minor details before you entrust your case to a certain company. There are many reputed and authentic companies in US and it is not a hard job to avail the services of the right one.

5 Ways to avoid being a victim of debt relief scams

  1. Make sure the existing clients have spoken good about the company
  2. The organization need to be certified by TASC and IAPDA
  3. Check out the rating given by BBB (Better Business Bureau)
  4. Take help from a company which is in business for more than 5 years
  5. Compare the fees before taking help of a debt relief company

Last Updated on: Fri, 18 Sep 2020