Most people are in debt. According to data from the Federal Reserve Bank of New York, in the second quarter of 2024, Americans’ total debt reached $17.8 trillion, with credit card debt accounting for $1.14 trillion. It’s natural for many people to seek debt relief, and in their haste to get rid of debt, some fall prey to “miraculous” promises, which often turn out to be scams. So how can you distinguish between scammers and legitimate companies?
Legitimate debt relief companies will help you design a plan to reduce your debt. One method is to negotiate with creditors a repayment amount lower than the total owed, if you agree to pay. The goal of debt relief companies is to help reduce a portion of your debt.
They can also assist in debt consolidation, combining multiple debts into one and lowering interest rates.
Legitimate debt relief companies offer debt management services, helping you create a strategic repayment plan to gradually reduce your liabilities.
Scam debt relief companies often reach out to you proactively through methods such as:
• Text messages
• Phone calls
• Letters
Some scammers may use automated dialing even if your number is on the “Do Not Call” list. These scammers don’t know if you are actually in debt; they just cast a wide net. Once someone takes the bait, the deception begins, and that person falls victim.
Scammer companies promise to significantly reduce or completely eliminate debt, or improve your credit score. If anyone makes such promises, it’s likely a scam. Legitimate companies do not make such guarantees, especially without fully understanding your debt situation.
Legitimate debt relief companies will thoroughly assess your financial situation before deciding to work with you to determine if they can help. On the other hand, scam companies often try to enroll you without reviewing any documents.
Scam companies often demand high fees upfront before starting to work for you, or even offer so-called refund guarantees.
The Federal Trade Commission in the United States prohibits advance fees.
Scammers may claim these fees are for your creditors, but in reality, scam companies pocket the money themselves.
Legitimate companies will bill you after the debt settlement process is completed, usually based on the amount reduced through debt relief. Some companies may charge monthly fees, but they should not be excessively high.
If a debt relief company tells you to stop contacting your creditors, steer clear of such a company as this approach never leads to positive outcomes.
Scammer companies also suggest exploiting so-called legal loopholes or government assistance programs to reduce debt. However, there are no such loopholes, and the government does not provide aid for personal loans or credit card debt – the only official assistance is through bankruptcy applications.
Credit repair companies can help you improve your credit score by correcting outdated, inaccurate, or misleading information. They will contact the three major credit bureaus:
• Equifax
• Experian
• TransUnion
Upon receiving the information, these bureaus will make corrections based on the information you provide.
Similar to debt relief scams, scam credit repair companies also proactively contact you and demand high upfront payments. Legitimate companies, however, will charge only after services are completed.
Scam credit repair companies may promise specific results, such as boosting your credit score. In reality, no one can guarantee this.
Some scammers may suggest purchasing a “Credit Privacy Number” (CPN) to avoid bankruptcy. They claim this number can reset your credit file, improve your credit score, and enhance your creditworthiness when applying for loans. However, CPNs are illegal.
These numbers are typically stolen social security numbers or random nine-digit numbers. Remember, using any identity number not issued by the government during credit applications constitutes fraud.
Furthermore, steer clear of any companies suggesting you apply for an Employer Identification Number (EIN) to replace a social security number; this practice is considered a federal crime.
The Credit Repair Organizations Act (CROA) mandates that credit repair companies must not lie or charge users before providing services.
Prior to commencing work, they must offer you a written contract, and you have the right to cancel services within three days after signing the contract.
In reality, you can contact creditors yourself and negotiate debt reduction. Some creditors may not wish to engage with debt relief service providers.
Don’t be afraid to directly contact them via phone as it is a cost-effective way and can help you avoid accidentally hiring a scammer.
The same applies to credit repair companies, as you don’t need them to correct errors or outdated information in your credit report. The three major credit bureaus are willing to communicate directly with users, welcoming users to correct information themselves.
You can do it on your own, without taking the risk of being deceived.
The original article titled “Don’t Fall for Debt Relief and Credit Scams” was published in The Epoch Times.
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