Debt Settlement Scams: How to Tell and Stay Away from It

Share Always beware of the many debt settlement scams out there when thinking of getting out of debt.

These scams can lead to the loss of your money and they can leave you in a very bad financial situation.

Debt settlement involves settling a certain percentage of the amount of money you owe with your creditors. You can get a fifty percent reduction of the money you owe to creditors and this is very convenient.

Usually, if you want to settle a debt with a creditor, the creditor asks you to pay the settlement in a lump sum. It is also possible to negotiate with the creditor to allow you to make monthly payments but this is an exception.

This is the reason why many people with debt find it necessary to use the services of a debt settlement company.

Be sure to carefully read the fine print before signing any paperwork with debt services, and avoid debt settlement scams, as this video demonstrates:

Many debt collection companies are legitimate and they review a person’s loans, assets and income. They then determine how a person with debt can repay the debt in a realistic manner.

Such companies usually negotiate with the creditor and set up a date when the debtor should pay the amount owed. The company then collects money from the debtor gradually.

However, it is unfortunate that some companies claiming to help people settle debt end up charging them a lot of money for their services.

The amount charged is usually 15% of the total amount a creditor owes and this is one of the common debt settlement scams.

Such companies do not make any negotiations but simply wait for the settlement offers that credit card companies make, which are usually fifty percent of the total balance.

The main aim of companies participating in debt settlement scams is to get the money that debtors pay them with no intention of working to repay the money to creditors.

These companies succeed in collecting money from desperate people who want to repay their debts in a less stressful manner and get away with these people’s money.

An example of a scam that is becoming popular is an enrollment plan identified as the “no hassle” plan.

This plan involves a company asking a person with debt to “enroll” in a plan they offer through the phone. The company does not ask for any documents to verify a person’s debts nor does it have any qualifying process.

However, companies involved in these types of debt settlement scams require people with debt to pay them a membership registration fee. They also require people to pay them monthly fees as they review a person’s financial status.

Incase you sign up to such a program and want to leave; such a company will retain the money that you paid as membership fees and the monthly payments.

Other companies involved in debt settlement scams will tell you that the people you owe have authorized your repayment plan and yet no one has contacted them.

The other scam involves a company telling you that they have informed your creditor that they hold the payments you contribute in a type of trust account and they are waiting for the money to reach a certain amount before they pay the creditor.

The company involved in this form of scam creates a monthly payment plan and the debtor pays them monthly. Such companies charge as much as fifty to one hundred dollars in terms of service fees.

The money that such a company holds in a trust account goes to pay the creditor when it reaches a specific amount.

However, most creditors do not agree to these types of plans and the debt settlement company usually continues to collect money from a debtor through all types of legal means available. 

Such a plan usually makes matters worse for the debtors because no creditor is able to wait for such long time to receive full payment. A creditor can still take a person who owes them money to court.

It is therefore important for you to be on the look out for such companies that claim to assist people in settling debt but do not help in any way. Debt settlement is different from debt counseling and debt consolidation.

When looking for debt settlement companies, make sure that you get reputable ones by looking for references and check for information whether they are members of the Better Business Bureau.

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