How to Avoid Debt Management Scams

How to Avoid Debt Management Scams

If you’re feeling desperate to get your debt under control, you might be tempted to try a debt management plan or program. These companies offer to help you manage your debt and get your financial situation under control.

Unfortunately, in most cases, these programs are scams and instead of helping you, working with them will lead to a much worse situation.

Here’s what happens, in a nutshell:

A non-attorney debt management program offers to work with your creditors to create a plan to make your unsecured debts easier to manage. They tell you to stop paying all of your monthly credit card bills, and instead, pay them a single payment each month. They claim this money will go toward paying your bills when in reality, your payments are being deposited into an account and held by the company for at least several weeks.

The company then might offer a settlement arrangement to your creditors, while also taking a chunk of the money in the escrow account as payment for their services.

As a result of the arrangement, you could be facing lawsuits from your creditors, and you’ve done very little to improve your situation. There’s a chance some of your debts were settled for less than you owed, but there’s a better chance you’ll be sued by your creditors because you’ve fallen so far behind on your payments – all due to the advice of the debt management program.

And if this happens, debt management programs do nothing to help you defend you against a lawsuit – only a laws firm can help you do that.

How Can You Recognize a Debt Management Scam?

There are services out there that will help you with debt. Unfortunately, it can be difficult to tell the difference between the helpful options and the scams. Even those familiar with the credit and debt industry can feel overwhelmed when weeding out the scams from the helpful programs.

What are some of the red flag warnings you should look for that can help you determine if a program is a scam?

• You are not dealing with a law firm and you’re asked for a payment upfront, before any services are provided.
• You’re not given any information about your legal rights.
• You’re not advised to directly contact a credit bureau
• You’re instructed to invent a “new’’ credit report by applying for an Employer Identification Number (EIN) instead of using your Social Security Number (SSN)
• You’re advised to take actions that seem sketchy or downright illegal, such as disputing everything on your credit report or creating a new credit identity

Keep in mind that if you do anything illegal, even if you were advised by a debt management program, you can still be held responsible.

Legitimate programs honor your rights as a consumer. They provide a written contract that explains all of their services and includes a three-day right to cancel out of that contract at no charge. They provide an estimated amount of time it will take to get you results and they let you know your total cost for their services up front.

And lastly, they never claim to be able to get accurate information removed from your credit report. Individuals have the authority to have inaccurate information removed from their credit report, free of charge. If a debt management program offers to have inaccurate information removed for a fee, they are taking advantage of you. And if they’ve offered to get accurate negative information removed, they are lying to you.

What You Can Do to Avoid Debt Management Scams

Avoiding debt management scams can be tricky if you’re desperate for a solution to your financial woes.

In many cases, common sense will help you avoid falling victim to a scam, but that’s easier said than done when you have credit card companies calling you on a daily basis demanding money you don’t have. Believing in an easy solution that comes your way can be tempting, even if deep down inside you know it’s too good to be true.

Your best bet is to stay away from for-profit credit counseling agencies that claim to be non-profit organizations. You’ll need to do your research! You can check out the National Foundation for Credit Counseling or contact the Better Business Bureau for more information on any program you’re considering.

As a general rule, don’t work with any non attorney programs that charge high fees or fail to provide you with educational information.

Of course, depending on the services you need, there might be fees required. For instance, if you need assistance defending yourself against a lawsuit filed by a creditor or you eventually decide bankruptcy is the best choice for you, there will be fees. The difference is you’ll be paying an attorney to work as your advocate, as opposed to paying an organization that’s making false claims about consolidating your debt or improving your credit.

Before signing a contract or entering into any kind of agreement with a debt management program or credit counseling service, ask the following questions you should consult with a debt resolution law firm.  At Weston Legal we offer a variety of debt relief options.

There is nothing easy or fast about resolving financial problems. It’s possible to make your situation better, but the financial problems you face are never going to disappear in an instant, and you should be wary of anyone claiming to make this happen.

If you’d like to know more about what you can do to improve your debt situation or you have questions about bankruptcy and how it might help you, contact us at 1.800.220.4318.