Most people have some debt. The Federal Reserve Bank of New York reported that in the second quarter of 2024, Americans held $17.80 trillion in debt, of which $1.14 trillion was credit card balances. It’s not a surprise that many people want debt relief.
People want relief so much that they believe it when they’re promised a miracle. But these organizations, with their big promises, are often scams. How do you know the fraudulent companies from the legitimate ones?
Legitimate Debt Relief Companies
Legitimate debt relief companies design programs that will give you relief from debt. One way they do this is by negotiating with your creditors to accept less than the total amount if you agree to pay the negotiated amount. The debt company’s goal is to have your debt discharged for less than you owe.They can also help you with debt consolidation. This replaces multiple existing debt with one with one that has a lower interest rate.
Finally, a legitimate debt relief company provides debt management services. These involve creating a strategic, structured plan to pay your debt.
How to Recognize a Scam Debt Relief Company
Usually, the debt-relief scam starts when someone reaches out to you. This could be through a:- text
- phone call
- letter
But how do they know you’re in debt? They don’t. But they send so many texts or phone calls that they’re bound to have someone return the message. And then the scam begins, and you’re the victim.
Scammers Promise Results
A scammer debt relief company will promise to reduce or eliminate your debt. Anyone who promises that you’ll be out of debt or have an increased credit score is likely a scammer.A legitimate company would never make that claim, especially since they don’t know the extent of your debt.
A fraudulent company will offer to enroll you in their program before they have seen your documentation.
A legitimate debt relief company will do its homework before it agrees to work with you. They want to know your financial situation and whether they can help.
Scammers Ask for Large Upfront Fees
A fraudulent debt settlement company will ask for a fee upfront before they start working. They may even offer a money back guarantee if you comply.Asking for a fee upfront is prohibited by the Federal Trade Commission.
Some scammers will say that these fees are payments to your creditors. But, of course, the fraudulent company keeps the money.
A legitimate company will invoice you after the debt has been settled. They usually charge a commission based on the debt relief amount. But some will charge a small monthly fee.
Others will charge a monthly fee, but these fees should not be exorbitant.
Ignoring Creditors and Offering Government Programs
Stay away from a credit relief company that tells you to stop all contact with your creditors. This never ends well.Fraudulent companies will advertise legal loopholes or government programs that will give you debt relief. There are no loopholes. And there aren’t any government relief programs for personal loans or credit card debt. The only relief offered by the government for these debts is bankruptcy.
Legitimate Credit Repair Companies
Credit repair companies help you fix your credit score. They focus on correcting outdated, inaccurate, or misleading information.They contact the three credit bureaus. These include:
- Equifax
- Experian
- TransUnion
How to Recognize a Fraudulent Credit Repair Company
As with debt relief, a fraudulent credit repair company will contact you. They also will ask for a large upfront fee.Legitimate companies only invoice after they complete the service.
A credit repair company that is a scam will promise specific results. They will claim they can improve your credit score. No one can guarantee this.
Offers You a Credit Privacy Number
Some fraudulent companies will recommend you procure a credit privacy number (CPN) as a way to avoid bankruptcy. And, of course, they’re willing to sell you one. Scammers promise this number will reset your credit profile. That will improve your credit score, and you'll have more creditworthiness when you go to lenders.But CPNs are illegal. They are usually stolen Social Security numbers, and others are just random nine-digit numbers. Remember, using any number other than a government-approved or issued identification on a credit application is fraud.
Also, avoid any company that tells you to apply for an employer identification number (EIN). This number is not a replacement for a Social Security number, and using one as such is a federal crime.
Credit Repair Organization Act
The Credit Repair Organization Act (CROA) states that credit-repair companies are not allowed to lie or charge you before performing any services.They must provide you with a written contract before commencing work, and you have the right to cancel within three days of signing the contract.
Act as Your Own Debt and Credit Relief Company
There’s nothing to stop you from calling the creditors and negotiating your own debts. Some creditors won’t work with debt- elief services.Don’t be afraid to pick up the phone and call. It will cost you less and protect you from hiring a scammer.
The same goes for credit repair companies. You don’t need them to dispute an erroneous or outdated item on your credit report. Any of the big three credit bureaus will talk to you. In fact, they welcome information being corrected.
You can do this on your own, so don’t risk being conned by a scammer.
The Epoch Times copyright © 2024. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
