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How to Avoid Debt Settlement Scams

By Debt.ca on December 21, 2020 No Comments
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Managing debt is hard enough without having to avoid debt settlement scams. The fact that you’re having a hard time paying your debts should be a cause of concern. Nowadays, many people pick from a variety of options to get out of their bad financial situation. One of the most preferred debt relief options right now is debt settlement.

However, you can encounter scammers that offer debt settlement plans with unrealistic promises targeting unsuspecting debtors. It’s a must that you know about these debt settlement scams and how to avoid them. Here’s a list of tips that you should keep in mind for that purpose.

Debt Settlement: How Does It Work?

Before we delve into how to avoid a debt settlement scam, let’s understand first how a debt settlement works.

Debt settlement is a process administered by a debt relief company that allows you to negotiate a reduction of your total debt with your creditors. Debt settlement companies often levy a service fee or a percentage of the settled debt.

In this process, you’re required to deposit money regularly into an account managed by a third-party entity. This account will be used to save the money you’ll pay to your creditors. Often, the contract will state that you make at least one payment for the agreed amount.

A debt settlement can be advantageous to you if the company you hire makes a successful agreement with your creditors. However, it’s not a guarantee that this will happen all the time.

Explore Other Debt Relief Options

Aside from debt settlement, there are other options you need to consider to reduce your debt or pay it off faster. There’s a debt consolidation loan, credit counselling, consumer proposal, and bankruptcy. You can also ignore your debt, (though it’s not advisable at all times because you may get hounded by collection calls from your creditors or impair your credit score).

Keep in mind that you must put in some effort to get yourself out of your financial predicament. Research about the various debt relief options you can take. If you know your options, you can avoid scams offered by bogus debt settlement companies.

Get Expert Advice

Many people crippled by debt are often ashamed because they don’t want anyone to know about their financial problems. They don’t seek common or expert advice and just do the work of solving their debt problems on their own. That’s why most of them get victimized by scammers and fraudsters.

So, if you want to avoid debt settlement scams, you must discuss your financial situation with a debt relief expert or ask your friends and families about their experiences with resolving their former debt issues (if there are any that they’ve experienced).

Always remember that you can get carried away by emotions in your situation and you need a good sounding board to help you in making the best decision. Also, don’t forget to filter the information you receive because there are people who would give you advice that is not relevant or helpful in your situation.

Consider Several Debt Settlement Companies

Receiving a phone call from your creditors every day is indeed annoying. Due to such annoyances and inconveniences, debtors are eager to hire a debt settlement company to help them resolve their high-interest loans and credit card debts. As such, they get into contracts that make them have the short end of the stick.

It’s a red flag if the debt settlement company can’t wait to have you sign a contract. Moreover, you must also be wary of companies that charge you fees upfront.

Don’t forget to compare several debt settlement companies and pick the one that offers the best deal. Moreover, if you find a company that conducts predatory practices, report it right away to the Federal Trade Commission.

Check Canada’s Better Business Bureau

You can also lookup a debt settlement company on Canada’s Better Business Bureau website or a consumer protection agency to ensure that it’s a legitimate and reliable one.

On the BBB’S website, you can see the complaints filed against a company. If you find that the company has a clean track record, you can consider choosing it to settle your debts with your creditors.

Besides checking the BBB’s website, you can also call directly at their office to ask their opinion about a particular debt settlement company or seek recommendations. Yes, the Better Business Bureau can get you on the right track to finding a good debt settlement company.

Know the Disclosure Requirements

You should know a debt settlement company’s disclosure requirements. The company should let you know all the conditions and fees related to the service it provides.

Moreover, the company should make you understand how long it will take for the debt settlement process with your creditors. And, of course, they should explain to you the risks when you stop paying to the persons or entities you owe money to.

Don’t Buy a Company’s Claims about “New Government Programs”

You should think twice if a debt settlement company will tell you about new programs by the government that will lessen the amount of your debt, cancel or forgive a student loan, balances on credit cards, or other debts. More often than not, it’s likely a debt settlement scam.

Avoid a Company That Tells You That It Can Repair Your Credit Report

Don’t fall too easily if a debt settlement company says that they can remove the negative information on your credit report or they can improve your credit rating. It’s a common tactic of a debt relief scam.

Keep in mind that information on defaults, debt delinquencies, and other debt issues will stay on your credit file for several years before they get removed.

Takeaway

A debt settlement can be an excellent way to reduce the total debt you owe to your creditors. However, you should know how to pick a good company that will negotiate with your creditors to that end.

You should be wary of debt settlement scams that target unsuspecting debtors. You can consult debt.ca if you need to learn more about how to solve your debt problem.

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