At the least, choosing the wrong debt relief agency can cost you more than other legitimate sources of help. At the worst, these companies may be scams just looking to take your money or even get you tangled up in illegal activity.
Despite these warnings, there are debt relief agencies that can truly help you. Here’s how to find the right help for dealing with debt.
Help yourself first
Before you sign on for help with debt relief, there are some steps you can take on your own without paying a dime.
For dealing with debt collectors, there are several options to get them off your back, especially if they’re trying to collect a debt you don’t owe.
The law gives you rights and protects you from certain practices that debt collectors may try.
You can dispute debts by sending a dispute letter, forcing the collector to prove they legally own the debt.
To stop calls, you can send a cease and desist letter to debt collectors. Although this won’t prevent debt collectors from moving forward with their case, it’s something that’s easily done on your own and prevents further contact unless the collector plans to take you to court.
If you’re looking to negotiate your debts, first try calling creditors yourself. You may be able to negotiate a settlement on your debt yourself.
Search for reputable agencies
Some consumers that have been victimized by debt settlement scams are contacted first, either by mail or phone, by companies soliciting their services. While this doesn’t mean all these companies are scams, you should still do your homework before agreeing to work with them or paying for their services.
The easiest way to find trustworthy help is to go through trusted channels to find help instead of choosing companies that advertised services to you. Two agencies, The Association of Independent Consumer Credit Counseling Agencies and the National Foundation for Credit Counseling, have lists of reputable companies to start in your search.
From there, you can also search to see what others have to say about them. Check with the Better Business Bureau to see if others have filed complaints. You can also type their name into a search engine with the word “complaint” to see what comes up.
Find out how they’ll help you
These companies will offer a wide range of services. Make sure what they offer is affordable and effective. You’ll want to find out details like:
- What exactly they’re offering and what it will cost
- Do the counselors hold certifications or have other training?
- Do they offer a refund if you’re not satisfied?
Look for companies that will work with your creditors to settle your debts and use legal and legitimate means to help you out of debt.
Be wary of companies that want to clean up your credit history. This is potentially the sign of a scam or a company that might use illegal practices to try to erase your past problems.
Determine the real cost
You should be able to receive at least some free advice and information from credit counselors. But if you’re going to pay for services, make sure the fees are reasonable.
Services that help you with paying back your debt should charge no more than $50 per month.
Other companies may offer to help settle your debts with creditors for a fraction of the outstanding debt. Be sure to find out what the cost for this service is ahead of time. The Federal Trade Commission does enforce regulations on debt settlement as far as when and what you can be charged a fee for.
Watch for red flags
There are many signs that the company you’re working with might not be qualified to solve your debt problems or could even be a scam.
Some claims to be wary of from debt relief agencies include:
- Upfront fees before any debts are settled
- Claims of help from new government programs
- Guarantees it can erase debt, either entirely or a specified percentage
- Tells you it can stop all lawsuits
- Asks for upfront fees by phone
The agency must also disclose:
- All fees upfront
- If they don’t offer refunds
- How long it will be (in months or years) until they will make offers to creditors
- How much you must save before they make offers to your creditors
- What the consequences are of not paying your debt or declaring bankruptcy
If you have any concerns regarding these issues, consider taking your business elsewhere.
Consider alternatives to debt relief agencies
Look at credit counselors first. This can be separate from debt settlement companies, with many credit counselors offering free information. You may find that services like a debt management plan makes sense to investigate before going straight to trying to settle debt.
Of course, bankruptcy may need to be considered if debt settlement won’t resolve your problems.
Chapter 7 bankruptcy can move faster and wipe out unsecured debt in less time than other debt relief options like debt settlement. Your credit score will take a hit, but you’ll be able to start rebuilding immediately rather than spending five years repaying debt like Chapter 13 bankruptcy.
Be sure to check with professionals about bankruptcy to see if you’re eligible and if it makes the most sense in your case.