If you’ve been searching for a debt management company, you have probably heard some combination of the following statements:
“Pay off your debt in as little as 6 months!”
“Reduce your debt by 60% or more!”
“Lowered interest rate guaranteed!”
If these slogans sound too good to be true, that’s because they are.
There are hundreds of debt management companies currently operating in the United States. The sad fact is that many of them aren’t interested in helping you repay your debts. They just want to sign you up for one of their debt management programs, have you pay a steep enrollment fee and pocket your monthly payments without paying your creditors a dime. Working with any of these companies can leave you in a worse financial situation than you might have been previously. An investigation by the Attorney General of New York found that one debt management company took in over 1 million dollars in fees, but left customers paying more to settle their debts than they originally owed in the first place.The truth is that there is no magic solution to getting out of debt and anyone who promises otherwise is lying.
Fortunately, there are ways to avoid these companies. It’s half common sense and half knowledge. Once you know what to watch out for, you can keep away from debt management services that are just after your hard earned money and have no intention of giving you the financial assistance you deserve.
What to watch out for
There are a few specific things that you should be aware of when looking for a debt management service.
The first major indicator that a company does not have your best interest at heart is if they claim to be able to lower your total amount of debt right off the bat. This is a blatant lie. There is no way a debt management service can know what your options are without first going over your financial documents, including the total amount of debt you have and your monthly income and expenditures. They must also know about your assets, as well as any agreements you may have already made with your creditors. You can file this promise in the “too good to be true” category.
Another big lie often told by shady debt management companies is that they can help you eliminate your debt in a ridiculously short time frame, such as three months. Again, there is no way the company can know this unless they also know the details of your debt. If it was easy to get out of debt as it is to get into it, nobody would ever struggle. The fact of the matter is that it takes time to regain control of unmanageable finances. It can take years, even with a structured repayment plan created by a reputable company. Also keep in mind that some debt, such as car and home payments, cannot be considered as part of a debt settlement or repayment plan.
Look out for any company that demands you pay a fee upfront before they provide you with any of their services. They are almost certainly in the business of duping desperate debtors into handing over their money with no intention of offering qualified assistance in return. While you may have to pay enrollment fees to a debt management company, they should always offer you a free or low-cost consultation prior to signing you up to any program. Reputable companies will charge anywhere from $50-150 for their services. Anything more than that should make you suspicious. In addition, be wary of any debt counselor who asks you to watch videos or read money management books. It’s their job to educate you about money management skills. If they don’t know what they’re talking about or if they seem hesitant to answer your questions, move on to another organization.
Finally, beware of any debt management company that advises you to cut off correspondence with your creditors and let them handle it. This is often where debtors get into most trouble with shady debt management companies. Why would they ask you to cease communicating with your creditors? Because if you did, you might find that the debt management service is not dispersing your payments to them as promised and instead are keeping the money for themselves. Meanwhile you are missing payments and damaging your credit score without even knowing it. Even when you are working with a good debt management company, you should check with your creditors to make sure they both accept the deal that your counselor has proposed and are receiving monthly payments as promised.
How to find a reputable debt management service
With all this information about shady debt management companies, you may be wondering how to find a service that won’t make your problems worse. The best place to start is to use databases provided by national credit counseling organizations. The most prominent of these are the National Foundation for Credit Counseling and the American Association of Debt Management Organizations. These organizations only approve debt management companies that have demonstrated strong ethics and fair business practices. In addition, the Justice department maintains a national list of debt management organizations that are in line with federal regulations.
Possibly the most important thing you can do to protect yourself from unscrupulous debt management services is to trust your instinct. No one can get you out of debt in three months or less. Nobody can make promises without first seeing your financial documents. Finally, nobody can cheat you out of money if you know what questions to ask. Good luck!
Sources:
Debt Relief Scams
Shady Debt Management Services Can Make Problems Worse
Shady Debt Collection Promises to be Wary of
Find a credit counseling agency through the American Association of Debt Management Organizations
Find a Counselor through the National Foundation for Credit Counseling
Justice Department approved Credit Counseling Services
