5 Warning Signs To Look For When Choosing A Debt Relief Firm

With many Americans still weighed down by debt, there seem to be an endless number of firms out there offering to help save people from the quicksand. Alas, not all of these people are completely on the up-and-up.

The Federal Trade Commission is trying to crack down on debt relief services that mislead customers with unsubstantiated or false claims and are really just out to put consumers deeper into the hole.

For example, the agency just announced a $3.3 million settlement with FDN Solutions, doing business as Everest Debt Solutions, 1800debtsettlement.com, and everestdebtrelief.com, for airing fake testimonials and for not telling customers that 30% of whatever they saved was to be paid out in fees.

Thus, the FTC has put together five warning signs to look out for when trying to decide whether to go with a debt relief firm.

The FTC says to stay away from any company that:
1. promises that unsecured debts can be paid off for pennies on the dollar. The truth is that there is no guarantee that any creditor will accept partial payment of a legitimate debt. Your best bet always is to contact your creditor directly and as soon as you are having problems making payments.

2. requires substantial monthly service fees and demands payment of a percentage of what they’ve supposedly saved you. The truth is that most debt relief companies charge hefty fees for their services, including a fee to establish the account with the debt negotiator, a monthly service fee, and a final fee – a percentage of the money you’ve supposedly saved.

3. tells you to stop making payments to or communicating with your creditors. The truth is that if you stop making payments on a credit card, expect late fees and interest to be added to the amount you owe each month. If you exceed your credit limit, expect additional fees and charges to be added. Your credit score also will be hurt by not making payments.

4. claims that creditors never sue people for not paying their unsecured debts. The truth is that creditors may have the right to sue you to recover the money you owe. And sometimes, when creditors win a lawsuit, they have the right to garnish your wages or put a lien on your home.

5. claims that they can remove accurate negative information from your credit report. The truth is that no company or person can remove negative information from your credit report that is accurate and timely. It’s illegal.

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  1. Pagan wants a +1 button says:

    Maybe I am just a naive waif, but I do not understand, in any way, how anybody could choose to make a living by stealing from people who are desperate. How evil do you have to be to start a company designed solely to play on people’s fears and use those fears to take as much money from them as you can get?

    How do you staff it? Do the people who actually answer the phones know who they work for and what they’re helping do?

    • Starrion says:

      In reality there are LOTS of people who make their money by ripping others off. And not the “charge higer prices” type of rip off, but the actual give-no-value type of scam.

      Consider:
      Debt relief
      Timeshare resales
      work-from-home scams
      auto repair warranties

      There are lots of people who work for these companies who dial the phone knowing that they are trying to steal from people and are not going to deliver anything of value to them.

      Driving home listening to ads on the radio is one ad after another for scams.

      • FatLynn says:

        I thought there were some non-for-profit debt counseling services that really did do good work. Is that no longer the case?

        • CrankyOwl says:

          You really have to do your homework before going to *any* debt relief company. Years ago I went to a non-profit which is mostly financed by the credit card industry. Guess which debts they advised all their clients to pay first – yep, credit cards!

          • Velkyr says:

            I’m curious, but isn’t that good advice? Especially if the CC is still active (I.E: Not sent to collections, still open and able to be used). Wouldn’t paying for all things that constantly update your credit report first be a good thing? As opposed to, say, your phone bill?

            I’m not saying they were in the right, as they should have exposed their conflict of interest, but at the same time, in my eyes, it seems like it could be sound advice under certain conditions.

    • 12345678nine says:

      At times the only jobs available are those call center jobs. You know what you are doing and if you scam people well you get more money. When you finally can’t take it anymore and quit, you are ineligible for any financial assistance because you left a job and will be looked down on.

      Seen it too many times.

    • frodolives35 says:

      How dare you they are JOB CREATORS. /s

  2. Blueskylaw says:

    So i’m going to save huge amounts of money by paying you huge amounts of money?

  3. framitz says:

    hmmm, None of the above applied to me when I was screwed over by Debt Free America.
    We paid a 1 time fee for services. We expected to have all debt consolidated into a single monthly payment lower than the previous total. We weren’t in terrible shape at the time.

    What actually happened is that the debts were consolidated with the total payment the SAME as before, but now the single payment was due all at once. That resulted in our not being able to space payments over two paydays and ultimately we had to declare bankruptcy.

    I should have known better and done more research before committing to the agreement with Debt Free America.

    If I had to do it over I would check with http://www.justice.gov/ust/eo/bapcpa/ccde/cc_approved.htm
    for legitimate help… No Debt Free America is NOT on the list!

  4. sp4rxx says:

    http://www.incharge.org/

    Took my $10k debt and worked with creditors to pay smaller minimums and lower percentage rates to get my debt to NOTHING in just over 3 years. They only ask for a one-time $50 “donation” which I was never able to pay so they waived it.

    EXCELLENT group. And though I am technically just an anonymous guy on the internet, I still highly recommend their services.

    I promise I am not an ad troll!

  5. Tim says:

    It seems these companies can’t do much more than debtors can do on their own, right? They’re basically just negotiating settlements, lower interest rates or other things for the debtor, then just charging fees for doing so.

  6. humphrmi says:

    In the olden days, it was easy to remove negative information from your credit report. You just deluged the credit reporting agencies with requests to remove; each and every request had to be responded to or the negative entry had to be removed. If you sent 100 requests and the reporter responded to 99 of them, that one unresponsive request meant that the entry was removed.

    This was basically how these services removed accurate negative information from your report.

    Now the credit reporting agencies have gotten wise to that, and ignore extraneous requests. So promising it is not only illegal, but inaccurate.

    • A.Mercer says:

      While you are right that it was possible to remove legit entries from your credit history using that tactic, there was nothing preventing a company from reposting it if they later could produce the evidence that the debt was real and belonged to you. So anything removed just gave temporary relief.

    • chatterboxwriting says:

      You can send multiple letters if you address different issues in each letter. The first letter might dispute an incorrect account number, the second letter might dispute the account type, etc. That is how I am tackling an erroneous entry on my credit report. The company refuses to remove it, but I am writing dispute letters attacking multiple parts of the tradeline. For example, it is listed as a student loan, but I never had a student loan with this company. I only have loans from the federal government.

  7. Dagny Taggart says:

    Also, keep in mind that you will be receiving a 1099 for amount that a debt was reduced, because the IRS considers forgiven debt to be taxable income. Between that and the fee paid to the company, is the additional damage to your credit really worth it?

  8. Cantras says:

    Wait. Stay away from any company that, #2, “requires substantial monthly service fees and demands payment of a percentage of what they’ve supposedly saved you” —

    but then the very next sentence,
    “The truth is that most debt relief companies charge hefty fees for their services, including a fee to establish the account with the debt negotiator, a monthly service fee, and a final fee – a percentage of the money you’ve supposedly saved.”

  9. ssevern says:

    “The truth is that no company or person can remove negative information from your credit report that is accurate and timely. It’s illegal.”

    There’s actually a law that says correct information must stay on a credit report?

    If I understand correctly, credit reporting agencies are private businesses, and if they wish to remove something from a credit report of theirs there is nothing to stop them. Also, if a creditor decides to change what they report, correct or incorrect, they are allowed to do so.

    • ScottG says:

      I think what they meant to say is that the Debt Relief agencies cannot promise to remove negative information from your CR – they basically just do the same thing you can: dispute it. Everyone has the right to dispute any line on their CR. There is some “game theory” on when to dispute and how often, etc. I have heard stories of people supposedly disputing a bankruptcy off their CR. At any rate it goes back to inflated and unrealistic promises… And as far as I know there is no law against regarding removal of negative CR information.

  10. LMA says:

    Is run by Ronnie Deutch! Man, how I miss her bellow.

  11. ScottG says:

    Many of the supposed debt relief companies are just as bad as the scumbag debt collectors they are supposedly “protecting” you from. The cynic in me wonders if these companies are run by the debt collectors.