Debt Relief Red Flags to Avoid
To get out from under overwhelming debt, you’ve decided to go the relief route. That’s understandable, as the financial strategy has helped scores of consumers like you. However, while most debt relief companies are legit, there are some scammers who are more interested in getting your cash than getting you out of your situation. Here are debt relief red flags to avoid.
What is Debt Relief?
Let’s start there. Also called debt settlement, debt relief is when you get a company to try to strike a deal with your creditors that would allow you to make a one-time payment in full of less than what you owe to “settle” your entire debt. Creditors are usually on board because they know that if you file bankruptcy – your other option and last resort – they’ll likely take a loss.
How Does Debt Relief Work?
You’ll have a consultation during which you and the company will go over your finances and come up with a personalized plan. Then, rather than pay creditors directly, you’ll deposit funds each month into a savings account that you control. Once you’ve saved enough – the amount will be determined largely by your income and the size of your debt load – the company will go to your creditors and negotiate on your behalf. Once each settlement is completed and approved by you, the creditor will be paid from your account.
Won’t That Hurt My Credit?
Even when you’re a student, you’re not safe with this too. If that’s the case, you might be wondering, can credit repair remove student loans?
The process of debt relief will cause a downturn – temporarily. Once you’re done with the program, your credit will markedly improve. And remember, your scores are depressed right now anyway.
And in a twist that works in your favor, your creditors are more inclined to settle with you because of your currently low scores, due to the possibility of bankruptcy.
How Long Does Debt Relief Take?
It varies by company, but we’re talking two to four years. While that might seem like a long time, it’s much less than the time it would take if you were to make regular, minimum monthly payments.
What About Those Scammers?
Most debt relief companies are credible. You won’t see a Freedom Debt Relief scam, for instance. That company’s been around for nearly 20 years and has the success stories to show for it.
Still, it’s crucial that you pick an agency that’s established, reputable and accredited. Otherwise, you may end up in a worse position than when you started.
What Can I Do to Avoid Them?
There are signs to look for before signing that dotted line. First off, never pay anyone in advance and run fast from any company that insists you do. It is against the law to demand payment upfront – before a single debt is settled.
You should also veer clear of companies that over-promise or make breathless “guarantees” about how they will settle all your debts by a time certain, oh and for pennies on the dollar. While debt settlement is a proven strategy, negotiations, by definition, are unpredictable.
What’s more, you may hear about something along the lines of “an exciting new government program that can rid you of your debt!” Again, turn on your heels, because if there were such a program it would make big news and you would’ve already heard about it. And shame on these bad actors who hope the mention of “government” lends needed credibility to their sham.
Now that you know about debt relief and red flags to avoid, you’re well on your way back to financial solvency. Just be sure to choose your company wisely.