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How do Debt Relief Scams Work?

Dena Standley | January 30, 2023

Dena Standley
Legal Expert, Paralegal
Dena Standley, BA

Dena Standley is a seasoned paralegal with more than 20 years of experience in legal research and writing, having received a certification as a Legal Assistant/Paralegal from Southern Technical College.

Edited by Hannah Locklear

Hannah Locklear
Editor at SoloSuit
Hannah Locklear, BA

Hannah Locklear is SoloSuit’s Marketing and Impact Manager. With an educational background in Linguistics, Spanish, and International Development from Brigham Young University, Hannah has also worked as a legal support specialist for several years.

Summary: Debt relief companies can help you resolve your debts and move on. However, some debt relief programs aren’t what they claim to be. You should do more investigating if a debt relief company guarantees they will reduce or pay off your debt, tries to charge you upfront fees, uses deceptive marketing, or downplays the potential consequences of debt settlement. On the other hand, you can settle a debt on your own with the help of SoloSettle.

The debt relief industry is filled with scams. The most frustrating is when scammers take advantage and dig you deeper into debt while falsely promising you financial freedom and good credit. These companies earn your trust by making irresistible claims, including lies that the government has enacted laws that exempt you from paying your debts.

The Federal Trade Commission (FTC) keeps a close watch and often flags fake debt relief companies. It also helps you, as a consumer, to spot a scam before it is too late.

This article will discuss these red flags. We will also explore a better route to take when you are drowning in debt.

How do debt relief scammers work?

There are legitimate debt relief companies. With proper due diligence, you can find the right fit for you. Such debt relief providers are transparent in their operations and follow set rules that comply with the regulations established by the FTC.

On the other hand, fake companies often sound too good to be true.

They ask you for money and then disappear, or they attempt to convince you to take a debt consolidation loan from them. They may advise you to cut all contact with your creditors or debt collectors. In the meantime, you are paying money into a consolidated account (which they control), hoping they will use it to pay off your debts.

Consumers with significant debt amounts are easy targets. Debt relief scammers know they are desperate and will cling to any hope of getting out of debt. So their advertising typically starts with catchy phrases such as, “Do you have $10,000 or more in debt? Are you struggling to pay?”

Vulnerable consumers fall for these lies every day. Be wary of any claims that sound too good to be true. If you are seeking genuine debt relief, below is a list of red flags that should make you immediately wary.

  • Guarantees that a debt relief provider will reduce or pay off your debt: You should consider it a warning sign when an alleged debt relief company promises specific results when the process has not even started. Refrain from engaging them further. You can also report such to the FTC.

  • Upfront fees: Imagine being deep in debt and someone running away with your money when all you are trying to do is find relief. The FTC set regulations barring alleged debt relief providers from charging upfront fees for their services. You should pay a percentage of the forgiven amount only after they have helped you successfully settle.

  • Deceptive marketing: Some student loan debt relief companies lie that they are with the government. They may claim that they can write off your debt without any consequences. But these are lies. Also, you should be wary of robocalls and other forms of deceptive telemarketing.

  • Downplaying the consequences of debt settlement, such as promising that it will not negatively impact your credit: Even legitimate debt relief companies ask you to hold out repayments. At the same time, you save up funds to make a settlement offer. It makes sense because creditors are willing to settle once you default. But there are serious cons of defaulting. You accrue additional interest and late fees, and the principal amount does not disappear. All this happens although the debt relief company can not guarantee that (1) the creditor will accept your offer, (2) the creditor will not sue you in the process, (3) your credit score will not sink deeper, or (4) you may have to pay tax on the forgiven amount.

Most of these tactics are against FTC regulations. However, these scammers don't care as long as they can prey on consumers and then take their money and disappear.

Before signing up for debt relief, you must look beyond the pros and ensure that you are prepared to deal with the consequences of the potential cons.

Do some research on companies and people banned from debt relief to further protect yourself.

Check out this video to learn more:

Settle a debt on your own with SoloSettle

You can take matters into your own hands and settle your debts by yourself with the help of SoloSettle.

SoloSettle, powered by SoloSuit, is different from traditional debt settlement companies. Here’s how:

  • You can settle the debt on your own with SoloSettle.
  • You have legal defense built in with SoloSuit. You can respond to a debt lawsuit and fight off collectors in court while working on the settlement.
  • You don’t have to make any payments until you’ve reached a debt settlement agreement.
  • You can settle a debt of any size with SoloSettle. Many debt settlement companies require you to have a large debt of $15,000 or more to enroll.
  • You stay updated with each step of the settlement process until an offer is accepted by your creditor or collector.

Let’s take a look at an example.

Example: Kaden was sued by Capital One Bank for a total debt of $3,500. He used SoloSuit to respond to the lawsuit with an Answer, giving himself time to work out a debt settlement. After looking at his finances and other debts, he decided he could pay off up to $2,625 (75%) upfront to settle the debt. He used SoloSettle to send a debt settlement offer, starting low at $1,000. This gave him room to grow when the opposing lawyer replied with a counteroffer. After a few rounds of negotiating, they reached a settlement of only 60% of the debt, or $2,100. Kaden saved hundreds, got the case dismissed, and gave himself a fresh financial start.

Still not convinced? Check out this review from a real SoloSettle customer:

“I'm very thankful for SoloSettle. Having a third party negotiate the settlement was instrumental in resolving this case and saved me from two giant headaches: 1) I didn't have to deal with the plaintiff's lawyer and 2) I didn't have to go to court. I also love that the payment was processed through SoloSettle. I was nervous about sharing my personal financial data with the other side, but SoloSettle protected that for me. I hope I never get sued again, but if I do, I would use SoloSettle again in a heartbeat.

SoloSettle really saved me a ton of time and heartburn and kept me from having to be my own lawyer in court.”

Beware of debt relief scams

Scammers are out to steal your hard-earned money. So you should be alert, especially if you are in a vulnerable state where you struggle to keep up with debt repayments. Do not engage with debt relief companies who “guarantee” results beforehand, ask for payment before they get you debt relief, or use deceptive marketing strategies.

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