With the total national credit card debt at an all-time high (more than $1 trillion, according to LendingTree), scams are also rising. In fact, the Better Business Bureau (BBB) reported that as of June this year, 1,794 consumers lodged complaints claiming they were defrauded by debt relief and credit card scams, with the organization noting they were on pace to receive 3,588 complaints by the end of the year.
What does this mean? Unfortunately, our country has a lot of credit card debt, and the scammers know it. To avoid fraudulent companies, we’re here to help you better understand debt settlement, scammer patterns, and alternative options for repayment.
Understanding Debt Settlement
While legitimate debt settlement companies can help you lower your overall debt, they’re also risky. These organizations are for-profit, and in addition to charging high fees (sometimes 15%–25% of what you owe), their tactics can land you in more debt.
- They often ask you to stop paying on your credit card debt to ensure your lenders are more likely to settle, which hurts your credit score.
- This will also incur you penalties and late fees, which means you’ll owe even more.
- Forgiven debt is taxable, which means you may end up owing the IRS thousands.
- Your lenders may not agree to settle.
Debt Settlement Scams
According to the BBB, scammers follow a typical pattern of reaching out to people with debt and promoting their ability to lower their debt. Once they get paid their fee, they disappear or offer fraudulent services. The most common complaints the BBB has received include high fees, unexpected charges, customer service issues, and paying thousands for little benefit.
The BBB advises against paying any upfront fees and avoiding people claiming they can provide “quick fixes.”
How a Consumer Credit Counseling Agency Can Help
Unlike debt relief/settlement companies, consumer credit counseling agencies are nonprofits that employ certified credit counselors. Counselors can help you create a budget, plan long-term goals, and provide educational resources to further your financial literacy. They can also enroll you in a debt management program, which means your counselor will work with your creditors to reduce your interest rate and consolidate your unsecured debt into one affordable monthly payment. While it’s not a quick fix, a debt management plan can provide the support you need to pay down your debt in three to five years while generally boosting your credit score through consistent repayment and full monthly payments.
Debt Management Plan: Enroll Today!
One monthly payment | lower interest rates | no more debt collector calls | improved credit score