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Last Updated: February 07, 2024
Smart Choices in Debt Settlement: Avoid These Common Traps
Watch Out for Debt Settlement Scams
While debt settlement can be a legitimate option for those looking to eliminate unsecured consumer debt, you need to beware of scammers making unfounded debt relief advertising claims, aiming to take advantage of those in financial distress.
Some common debt settlement scams include:
- Charging expensive upfront fees before providing any debt relief services. Reputable companies, especially legitimate debt settlement companies, typically don't charge fees until after settlements have been successfully negotiated, in compliance with the telemarketing sales rule.
- Promising to make your credit card debt disappear or erase it from your credit report. No legitimate debt settlement company can legally guarantee the complete elimination of your credit card debt from your credit report.
- Telling you to stop paying or communicating with creditors. This can lead to lawsuits and further damage your credit.
If you come across any of these red flags, avoid that company and look for one with a solid reputation.
Ask These Key Questions
Before choosing a debt settlement company, ensure it's a legitimate debt settlement company by asking:
- How long have you been in business? Look for several years or more in the industry.
- What are your fees and when are they charged? Fees should only come after settlements.
- Can you provide references from past clients I can contact? A quality company will be happy to connect you.
Getting answers to these questions upfront will help you evaluate if a company is the right fit.
Debt settlement can be a stressful process, even before you enroll. Doing the research can add to your anxiety as you visit different sites, read reviews and try and determine who is the best debt settlement company for your needs. If you haven’t done so already, I suggest reading “ 5 Important Questions to ask Before You Sign Up
As you do your research, it’s important to know that many debt settlement companies use misleading marketing tactics. To help you spot these deceptive tactics, we’ve put together a list of three common marketing tricks used by debt settlement companies.
Trick 1: Being deceptive about the fees.
Most reputable companies charge no up front fees these days. In fact Federal law mandates it. If you shop around, most companies charge anywhere between 18-25% of the debt you enroll. However, some companies have recently started quoting these figures on an Annualized basis. So if the fee is 24% of the debt, but the program is 4 years, they quote “approx 6% per year.” Six percent sounds a lot better than 24% right? The fact is it’s misleading and our employees are hearing it more and more when consulting with consumers.
Trick 2: Bait and switch from personal loan to debt settlement.
This is one of the most common tactics being used today by debt relief services providers, misleading consumers with too-good-to-be-true offers that pivot from debt consolidation services to debt settlement plans. Debt Settlement companies are sending out direct mail pieces offering a consolidation loan that sounds too good to be true. Unfortunately, it is too good to be true. After the consumer calls in to apply for the personal loan, they are told that they don’t qualify. Most consumers won’t qualify. The sales agent then presents the consumer with “good news!” The "good news" is the debt settlement program, which the consumer conveniently does qualify for. Here is an example of what these mail pieces typically look like:
Trick 3: All the Client Reviews are from recent enrollments.
Many companies, including Pacific Debt, solicit reviews from customers on sites such as TrustPilot, BestCompany and Google. To read reviews about Pacific Debt, you can visit our website here , check out our blog or simply google “Pacific Debt reviews”. Reading actual customer reviews is a great way to hear what others are saying about a company. However, it is important to read several reviews to determine the quality of those reviews. Is the company simply asking for reviews from customers who just signed up or from those who have actually completed the program? Debt settlement is usually a 3-4 year program, so clients who have been enrolled for more than a few days are better suited to give an actual review of the service.At Pacific Debt, we ask for reviews from new enrollments, active customers as well as recently completed clients. Some of our competitors only ask for reviews from recent enrollments. Recently enrolled customers are more inclined to hand out a 5 star review because they are happy to get help. Reviews from consumers who have experienced settlements and dealt with customer service over the course of many years, should carry more weight than reviews from brand new customers. So be mindful when you scan through the reviews of the debt settlement company you are researching, you should be able to read at least some reviews like these:
Review from BestCompany.com 3/17/18
Review from Google Feb 2018
So as your embark on your quest to find the best debt settlement company, please be mindful of these common misleading marketing tactics. If you’d appreciate a free evaluation of your situation, from a company that has been helping consumers for 16 years, call our team today at the number above. We can help you assess your situation and see if debt settlement is right for you. If not, we can connect you with a Trusted Partner who might be better suited to help. We are also happy to pass along some free advice and point you in the right direction.
Evaluating Debt Settlement Company Reviews
When looking at reviews of potential debt settlement companies, keep a few things in mind:
- Mixed reviews may be a good sign, as no company is perfect. Be wary of only glowing reviews.
- Look for reviews from those who have completed programs, not just recent enrollments.
- Check third-party sites like the Better Business Bureau in addition to the company's website.
- Make sure you can find reviews that are a few years old. Longevity indicates reliability.
Getting a balanced perspective from reviews will help you make the best choice.
Myth vs. Fact
There are some common misconceptions about debt settlement.
Here are the myths versus the facts:
- Myth: Debt settlement will ruin my credit score.
- Fact: Debt settlement may hurt your credit initially, but so will other options like bankruptcy. Settling debt can be better for your credit long-term compared to defaulting.
- Myth: Debt settlement companies take most of the savings.
- Fact: Reputable companies take a percentage of the debt saved, but the majority goes to paying down your balances.
Other Options Beyond Debt Settlement
While debt settlement is one route, also consider:
- Debt consolidation loans to combine debts into one payment.
- Balance transfer credit cards to pay off credit cards at 0% interest.
- Non-profit credit counseling for free advice and debt management plans.
These alternatives may be less risky and provide more protections than debt settlement, also consider exploring debt consolidation services, which can help you manage and potentially reduce your credit card debt more effectively.
FAQs
Conclusion
Debt settlement can be a complex process filled with risks and pitfalls. By educating yourself on common scams, asking the right questions, and reading reviews carefully, you can avoid potential debt settlement traps. Make sure to consider all your options, from debt consolidation loans to credit counseling, before deciding if debt settlement is your best path forward.
While debt settlement companies advertise heavily, finding the right one is about more than slick marketing. It pays to do your research thoroughly and understand the pros and cons before enrolling in any program. Arm yourself with the facts and knowledge so you can embark on your debt freedom journey with confidence.
So as your embark on your quest to find the best debt settlement company, please be mindful of these common misleading marketing tactics. If you’d appreciate a free evaluation of your situation, from a company that has been helping consumers for 16 years, call our team today at the number above. We can help you assess your situation and see if debt settlement is right for you. If not, we can connect you with a Trusted Partner who might be better suited to help. We are also happy to pass along some free advice and point you in the right direction.
If you are struggling with overwhelming debt and want to explore your debt relief options, Pacific Debt Relief offers a free consultation to assess your financial situation and debt-free. Our debt specialists can provide objective guidance relevant information and support to help find the right debt relief solution.
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*Clients who make all their monthly program deposits pay approximately 50% of their enrolled balance before fees, or 65% to 85% including fees, over 24 to 48 months (some programs lengths can go higher). Not all clients are able to complete our program for various reasons, including their ability to save sufficient funds. Our estimates are based on prior results, which will vary depending on your specific circumstances. We do not guarantee that your debts will be resolved for a specific amount or percentage or within a specific period of time. We do not assume your debts, make monthly payments to creditors or provide tax, bankruptcy, accounting or legal advice or credit repair services. We are not a credit repair firm nor do we offer credit repair services. Our service is not available in all states and our fees may vary from state to state. Please contact a tax professional to discuss potential tax consequences of less than full balance debt resolution. Read and understand all program materials prior to enrollment. We are licensed where we engage in business. NMLS # 1250953. The use of our services will likely adversely affect your creditworthiness, may result in you being subject to collections or being sued by creditors or collectors and may increase the outstanding balances of your enrolled accounts due to the accrual of fees and interest. However, negotiated settlements we obtain on your behalf resolve the entire account, including all accrued fees and interest. C.P.D. Reg. No. T.S. 12-03825.