Warning Signs of a Debt Settlement Scam

With millions of Americans facing hard times and unbearable amounts of debt, it comes as no surprise that debt settlement companies are everywhere, advertising that they can settle debt for pennies on the dollar, stop creditor calls and preserve your credit. Unfortunately, most of these companies make unreasonable or even illegal claims, and you can get yourself into even greater trouble by signing up for their services, left in the end with an even greater amount of debt and thousands gone in fees.

Before you consider debt reduction services, make sure you know the following warning signs of a scam. 

1. They claim they can dramatically reduce your debt

This is the primary claim associated with debt reduction services, of course, but it's a serious red flag if a debt settlement company claims they can and will do so. It's true that some of your creditors may be willing to reduce your balance, but this is an unrealistic claim and they cannot make any sort of guarantee.

2. They claim they will stop collection calls and prevent legal action

Be aware that debt settlement companies have absolutely no control over the debt collection practices of your creditors. This means they cannot stop collection calls, and they absolutely cannot prevent legal action against you. Unfortunately, many creditors are known to become more aggressive, not less, when they find out you are working with one of these companies. That means collections will start sooner, and you will be more likely to be sued in court. In this case, the company cannot help you.

3. They charge a high upfront fee

Did you know it is illegal for debt settlement services to be charged upfront? A debt settlement company must successfully settle at least one debt before charging you, so be aware of your rights. Also, a legitimate company bases fees on the amount you owe to your creditors and it's directly tied to their performance on your behalf. Don't agree to pay huge fees for a service you do not know you will even receive.

4. They tell you your credit will be unharmed

Do not trust any company that provides debt reduction services if they tell you your credit will not be affected. The truth is your score will be affected when a debt settlement company gets involved. You will most likely be told to stop paying your accounts to create incentive (which causes late payments on your credit), and even the successful settling of a debt is a red mark on your credit that remains for 7 years.

5. They tell you not to speak with creditors

Finally, be aware that this is only an attempt to keep you from knowing the real status of your accounts. This is not something a reputable company will do, and one of the many reasons you may be better off working with a debt settlement attorney who is bound by the law and works in your best interests.