Debt is no picnic. You struggle with payments, watch interest pile up, dodge collectors, and look everywhere for the strategy that will get you out of the hole. On top of all that, you’re also at risk for debt relief and credit repair scams.
At first glance, it’s hard to see why scammers would go after people who are struggling to make debt payments, but it’s a strategy that works. People in debt are often desperate, and the deeper the debt they are the more desperate they may be. A person scrambling for a way out is an attractive target for a scammer promising an easy solution. Scammers routinely target people who have fallen into debt with phony debt relief and credit repair scams that promise to resolve debt or credit issues fast and with minimal effort.
In reality, these scammers are preying on your desire to get out of a bad situation. They will charge you fees without actually doing what they’ve promised to do. You won’t end up any better off and things could get worse. This is why it’s so important for consumers to know that debt scammers are waiting in the wings. If you know what to look for you’ll be a much harder target.
Let’s take a look at some common scams and some ways to avoid them.
Breaking Down the Scams
There are several scams to watch for. Keep in mind that scammers may not always proposition you directly. They may put out very convincing, carefully crafted ads online or through social media promising relief services that inspire you to reach out for help.
⚠️ A company isn’t legitimate just because it buys ads!
Debt Relief Scams
A company is claiming that they can get you out of debt by negotiating with creditors on your behalf. They promise that they can get your debts lowered or forgiven if you provide some personal information. They claim an impressive track record and present dramatic testimonials claiming that they reduced or eliminated debt for other clients. It sounds like a great deal, but it’s time to be careful.
These companies will charge you up front, take your money, then disappear without taking any action on your behalf at all. Some may “try” to get your debt reduced using very basic, inefficient methods just to be able to say that they offered services, even though they know their techniques are useless. Most of what they do (if they do anything at all) you could do yourself at no cost.
Auto Loan Scams
If you’re overwhelmed by car payments, companies that promise to help you work out a loan modification for your auto loan may seem appealing. These companies target people who are at risk for vehicle repossession. Unfortunately, the story is almost always the same. The victim will pay a fee to the scammer before realizing that the scammer has vanished into thin air. Some may stick around to try to extract more money from you under the guise that they are still “working on your case”.
Credit Repair Scams
Credit repair scams prey on your desire to build back your credit after encountering some financial hiccups. Scammers will often promise customers that they can remove legitimate negative information from credit reports. In reality, this is impossible to do.
Victims of these scams pay scammers money in the hopes that they can boost their credit scores and their access to credit. They end up discovering that their credit reports remain unchanged and their money is gone.
Repairing damaged credit takes a long time and anyone who promises quick and easy solutions is probably a scammer. Instead of falling for credit repair scams you should focus on legal and effective methods of rebuilding damaged credit that actually work.
Telltale Signs of Debt Scams
While debt scammers can be subtle, they often display some red flags that are easy to catch if you know what to look for. Remember that you have every right to ask questions before you agree to work with a company. Any sense that you’re being rushed is a big red flag. Unrealistic promises are an even bigger red flag. Watch out for these tactics.
- The company contacts you. Most legitimate services do not initiate contact with potential clients.
- The company refuses to send you the specifics of the services being offered to you until you provide personal financial information. Scammers often want access to your bank account numbers, credit card numbers and available balances.
- The company asks you to pay fees ahead of time. This means you’re making payments before you’ve received any actual relief.
- The company tells you to stop communicating with creditors entirely.
- The company appears to use the same one-size-fits-all technique for every client. Real credit relief should be tailored for the needs of each person.
Some scammers may try to get you to pay upfront costs by saying that they are charging for “counseling” services for your debt. This is still a red flag. Legitimate counseling services will offer introductory sessions at no cost. Some scammers will present the upfront fees as “voluntary payments” to make it seem as though they aren’t pressuring you because they know you are likely to feel obligated to pay for services.
How Can You Avoid Debt Relief and Credit Repair Scams?
Awareness is the first step to avoiding scams. If you know they’re out there they are easier to spot.
You don’t necessarily need help from a professional to try to get out of debt on your own. Here are some steps to take if you’re having difficulty with making debt payments:
- Learn about legitimate debt relief and debt settlement options.
- Decide whether you want to pursue debt relief on your own or seek outside help.
- If you decide to seek help, try a reputable credit counseling service first. Most offer free initial sessions so you have nothing to lose.
- If you decide to use a for-profit debt relief or debt settlement company, check the company’s reputation first.
- Ask for a written disclosure detailing all setup fees, service fees, maintenance fees, and any others.
- Look for information on legitimate companies using the National Foundation for Credit Counseling’s website.
There’s no easy road to debt relief, but facing facts and getting started will do you more good than falling for impossible promises!
If your focus is on repairing your credit history, start by pulling your credit report for free once per year from each of the three main credit-reporting agencies (Equifax, Experian and TransUnion). You can get negative information removed from your credit report if that negative information is erroneous or inaccurate. You can do this yourself. Your credit report will contain instructions for filing a dispute. You can also open a dispute with the business that made the inaccurate report against you.
⚠️ It is impossible to have a legitimate mark on your credit history removed. Anyone who promises that they can remove a legitimate negative item from your report is not being honest.
Credit reporting agencies do not need to have an original signed contract or any other such document, and you cannot get legitimate items removed from your report with a so-called “609 dispute letter” or any other magic trick.
Most negative information stays on your credit reports for seven years from the date that the account first became delinquent and was not subsequently brought up to date. Credit scoring models place more weight on recent information, so your negative records will have less impact on your credit as years go by.
In some cases, you may be able to petition your creditor to remove negative information from their reports tot the credit reporting agencies. You may be able do this by offering a payment in exchange for a deletion. If you’re unable to pay, you may be able to convince a creditor to retract the negative information as a goodwill gesture. The decision is entirely up to your creditor in both cases. There is no guarantee that the credit reporting company will remove any prior record of the account.
How Much Is Too Much to Pay for Debt Relief Services?
A company is not necessarily fraudulent just because it charges fees. Asking for a large amount of money is a sign of trouble, especially if the company wants payment upfront. The US Department of Justice, citing the Consumer Federation of America, says consumers should only be paying about $50 for setup fees. Maintenance fees for an ongoing account should not exceed $25.
What Can You Do if You’ve Been Scammed?
What should you do if you’ve lost money to a debt scammer? If you encounter debt relief and credit repair scams, consider reporting the company. You can help to prevent scammers from harming anyone else. Always keep copies of your reports. If the scammer’s actions have created additional problems with your creditors the documentation may help you resolve them.
Here’s where to report your information.
- The Consumer Financial Protection Bureau (CFPB).
- The Federal Trade Commission (FTC).
- The attorney general’s office in your state.
You can also consider reporting a scam to your local police. This may not get you very far if the scammer communicated with you over the phone or the Internet. Companies that operate debt scams are not always located in the United States. This can make it very difficult for local authorities to track them down.
If you think you’ve been scammed, it’s important to check in with your creditors to see if any extra damage has been done. In many cases, scammers will advise their victims to stop making payments on their debt. This can mean that you’re even farther behind in payments than you realized.
If you’ve been targeted by one scammer, you’re likely to attract others. Your name and contact details may be on a database of potential targets. These lists are often sold to multiple scammers. Be aware and be careful.
If you provided personal information to a scammer, such as an account and credit card numbers, you may be at risk of identity theft. Consider placing a fraud alert on your credit reports (which you can do for free) or retaining a credit monitoring or identity theft protection service (which will cost money).
The Golden Rule
Avoiding debt and credit repair scams is not much different from avoiding any other scam. The golden rule still applies:
It may be nice to hear that someone can make your debt “magically disappear” if you pay a large upfront fee, but that doesn’t mean it will actually happen. It may not be so nice to hear that you’re going to have to cut your spending, try to increase your income, and apply a lot of discipline for quite a bit of time to get out of debt, but the person giving you that message is being much more honest and is much more likely to have your interests in mind. Sometimes the news you want to hear isn’t the news you need to hear!