With the total national credit card debt at more than $1 trillion for the first time ever in the United States, Americans should be on the lookout for scams. According to the Better Business Bureau (BBB), as of June 2023, 1,794 consumers logged complaints claiming they were defrauded by debt relief and credit card scams. When those numbers were released, the BBB noted the organization was on pace to receive 3,588 complaints by year’s end.
To avoid debt settlement scams, we’re here to help you better understand debt settlement, what to watch out for, and how to get real help.
What is a debt settlement company?
Debt settlement (or debt relief) companies are for-profit services that offer to negotiate with your lenders to lower the amount you owe. However, the tactics they use can land you in more debt.
Negatives of debt settlement companies include:
- Expensive fees—sometimes 15%–25% of what you owe.
- Your credit score will likely take a hit since debt settlement companies often ask you to stop making payments on your credit cards.
- Stopping payments means you’ll incur penalties, which will increase your debt.
- Any forgiven debt is taxable, so you may still be on the hook for thousands with the IRS.
- Not all credit card companies will agree to settle.
What is a debt settlement scam?
While a legitimate debt settlement company may not always be the best option, predatory companies usually follow a similar pattern, according to the BBB. These companies will reach out to consumers in debt, promoting their ability to reduce the size of the consumer’s debt, but once they get paid by the consumer, they often disappear or offer fraudulent services.
The most common complaints have been high fees, customer service issues, unexpected charges, and paying thousands for little-to-no benefit. The BBB advised that people should never pay an upfront fee and avoid companies offering “quick fixes.”
Alternatives? Consumer Credit Counseling
Consumer credit counseling organizations generally provide budgeting sessions, goal planning, and financial literacy education with certified counselors. Through a credit counseling agency, you can also enroll in a debt management program to help you pay off your debt. Your counselor will work with your credit card companies to consolidate your unsecured debt and lower your interest rates, so you can pay one affordable monthly payment—resulting in generally boosting your credit score through consistent repayment and full monthly payments.
Benefits of Debt Management
One monthly payment | lower interest rates | no more debt collector calls
Make your no-obligation - FREE - counseling appointment now