America has a lot of credit card debt—more than $1 trillion, according to LendingTree. With the national credit card debt the highest it’s ever been, it’s no surprise a recent Better Business Bureau (BBB) report showed that debt relief (also known as debt settlement) scams are on the rise.
As of June, 1,794 consumers claimed they were defrauded by debt relief and credit card scams, with the BBB noting they were on pace to receive 3,588 complaints by the end of the year.
If you’re like millions of other Americans and your credit card debt seems too much to handle on your own, asking for help may be the best choice for you.
But here’s three things you should know:
Legit or not, debt settlement can hurt you financially.
While debt settlement companies may be able to help you reduce your debt, they might also put you in more debt. These types of companies are for-profit organizations that offer to negotiate with your lenders to reduce the amount you owe. However, even when the company is bonafide, they may not be doing you any favors. That’s because they use tactics that can land you in more debt than you started with.
The negatives of a debt settlement include:
- Charging high fees (15%–25%) of what you owe.
- Telling you to stop paying on your credit cards so your lenders are more likely to accept a settlement (which will drop your credit score).
- Incurring late fees and penalties that will put you in more debt.
- Owing the IRS thousands since forgiven debt is taxable.
- Lenders not agreeing to settle.
Debt settlement scams follow similar patterns.
According to the BBB, companies preying on consumers typically reach out to those in debt and advertise their ability to reduce their debt. But once they get paid their fee, they disappear or offer fraudulent services. The BBB advises against paying any sort of upfront fee and avoiding anyone who promises “quick fixes.”
Nonprofit consumer credit counseling agencies can help.
A certified credit counselor will help you create a budget, plan for the future, and provide resources and education to further your financial literacy. They can also enroll you in a debt management program, where they will work with your creditors to reduce your interest rate and consolidate your unsecured debt into one affordable monthly payment. Through consistent repayment and full monthly payments, your credit score will generally go up and your debt will go down.
Debt Management Plan: Enroll Today!
One monthly payment | lower interest rates | no more debt collector calls | improved credit score