Recognizing Debt Settlement Scams

“Our innovative program will make all of your debt disappear in just a few months for pennies on the dollar. We’ll also stop all collection calls and lawsuits. This guaranteed method is sponsored by the US Consumer Financial Protection Board to help people get relief from COVID-19 related financial woes. Just send us $49.95 and we’ll get right to work for you.”

Each one of the four sentences above contains clues the paragraph is promoting a scam.  Here’s what you can learn from them to help you get better at recognizing debt settlement scams.

Certain Debts are Immune to Settlement

Unsecured debts such as personal loans, credit card debt and even medical debt can be negotiated and settled. However, secured debts, such as car loans, mortgages, boat and motorcycle loans are ineligible.

This is because the lender can repossess whatever asset was used to secure the loan if you can’t make your payments — thus the term “secured debt”. However, public student loans, alimony and child support are also immune to debt settlement.

Thus, anyone saying they can make all of your debt disappear is lying — and operating in violation of the law. 

There Are No Guarantees

One of the first things any legitimate debt relief  company will tell you is there are no guarantees. This is because every situation is different and therefore negotiated on a case-by-case basis.

What worked for one person might not work for another. Thus, anyone guaranteeing positive debt settlement results is lying — and operating in violation of the law.

Government Entities Aren’t Involved 

OK, well that one isn’t entirely accurate. The Federal Trade Commission does keep an eye on the debt settlement industry to make sure companies offering debt relief are on the up and up. The same is true for your state attorney’s general office and your local consumer protection agency.

However, no government organization promotes debt settlement. Nor do any of them offer debt settlement services. Anyone claiming to be working with any branch of government to settle debt is lying — and operating in violation of the law.

Upfront Fees Are Not Permitted

As part of its effort to protect consumers, the FTC has decreed debt settlement firms can only exact fees after they’ve settled debts on a consumer’s behalf.

Yes, you will be required to set cash aside to fund your settlement agreements as they are reached. However, that money is only to be used to fulfill the arrangements your creditors offer.

Any other use of that money is prohibited. Therefore, anyone saying you need to give them money before they’ve settled one of your debts is lying — and operating in violation of the law.

Creditors Will Still Make Inquiries

One of the premises of debt settlement is you’ll stop making payments to your creditors and instead deposit that money into an escrow account to be used to fund your settlement deals.

So you’d best believe your phone is going to ring when those bills go unpaid.

Yes, you can tell your creditors you’re working with a debt settlement program and they should get in touch with your agent there. However, that cannot stop them from calling you just the same. Anyone who says they can is lying — and yes — operating in violation of the law.

Recognizing debt settlement scams is relatively simple when you bear in mind the old adage; “If it sounds too good to be true — it probably is.” Don’t let desperation be a motivator, keep your wits about you. Understand that just as it took time for the debt situation to develop, unwinding it is going to take time too and you will come out of the situation OK.