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How to Evaluate Debt Relief Services

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There you are, neck deep in debt with your credit cards and sundry large loans that you have taken in the past – for cars that you have bought, vacations you’ve taken and various poorly considered electronic gadgets that seemed indispensable at the time. You feel strangulated by all the monthly payments that you have to make to these creditors. You’re sure that the time isn’t far off when even making the minimum payments on your credit cards will be too much to afford. That’s when the calls arrive. They are from the debt relief services, and they claim that once you hire them for a small fee, they will go to work for you and arrange to have your monthly payments brought down to a fraction of what they are now. Should you bite?

The debt relief services inhabit a business area that sees a great deal of action today. The economy really hasn’t been recovering the way most people have hoped, and this has pushed vast swathes of the population to the brink. In other words, there is a large audience out there that’s looking for some form of debt relief. Desperate demand such as this is certain to attract fraudulent fly-by-night operators to any business. The financial businesses may even be a little more prone to these types than others.

The basic premise of what they offer you is simple enough. If you are in a very difficult financial position and you owe too much, they will speak with your creditors and find a way to either lower your interest rate or write off part of what you owe.

It does sound encouraging enough in concept. As with most things involving creditors, money, and hopeful-sounding shortcuts though, these things don’t play out well in reality.

As many hapless, financially troubled people have found out, many of these debt relief services are run by confidence tricksters. They have neither the intention nor the means to deliver on their promises. All they do is to charge you several hundred dollars in fees, and tell you to leave all your financial worries to them. If you do as they tell you and stop worrying about making your monthly payments, all you will gain in the process is a bunch of late fees and penalties for not paying. Those people behind the helpful marketing calls will have taken the fees you paid them and disappeared.

Let’s try a real world example

Mark, a 40-year-old family man from Baltimore was a real target for fraudulent debt relief businesses from the get-go. The year was 2011, and his hours at work had been cut back. He had $40,000 worth of debt of every description. He had three children and he was desperate for a way to not have to make thousands of dollars in monthly payments. These con artists do look for people like this. When they learn of one, the calls started coming in.

The rep who makes the marketing call and deals with the customers is usually a person with a confident, authoritative and cheerful manner. To someone who’s deep in financial trouble, just to hear a voice like that calling and telling them that there is help at hand, can sound completely convincing.

The woman on the line told Mark that her debt reduction company could easily help. The company would negotiate with the credit card companies that he had cards with and would find a way to get them to lower their interest rates. This one thing alone would help Mark pay off his car loan, his mortgage and his credit cards in a fraction of the time it would otherwise have taken him. He cheerfully paid the $500 fee that was required. Why wouldn’t he? The rep on the line told him he would manage to save as much as $3000 in the first six weeks alone.

Mark never heard from the company after he paid the fee. They would never pick up his calls. He complained to the Federal Trade Commission and they sued the company for him.

Now this is not to put you off the debt relief services altogether

There really are good, helpful services in existence that actually do the things they promise. But one does need to be careful.

For instance, many of these shady services will call you telling you that they are a nonprofit organization, and all they want to do is to help people find a way out. The fact that they call themselves “nonprofit” helps them get past the hesitation many people feel dealing with anyone who cold-calls them offering financial services. The FTC finds many of these services are in fact for-profit ones.

Some of them will call you up with a promise of help in return for a fee. When they get their $200 or $500, they merely give you a list of debt relief services in your area that might help you for a fee. Only then do you realize that what you paid them was just a referral fee. A referral is quite worthless when you can just do a little research on the Internet yourself.

But you should always stay away from debt settlement services

There are variations on the basic theme that they will use often, to try to take you by surprise. In one of the most tempting ones, they will call you and tell you that they can negotiate with your creditors to actually write off half of what you owe.  They call this “debt settlement”. Now unless you go to bankruptcy court and file, a thing like this can only be called plainly fanciful. This kind of thing doesn’t exist. The FTC and many consumer organizations try their best to warn people away from the debt settlement businesses altogether.

Do many people get hurt doing business with these scammers?

There are thousands of horror stories that the FTC gets to hear every year. These scammers will target the needy, the poor and the vulnerable – anyone who will pay them. All they want is to get someone who will sign up and pay them the fee upfront. That’s all they need. They can promise anything, because they have no intention of even trying to deliver.

How do you tell the good debt relief services apart from the bad ones?

If it’s a legitimate credit counselor or debt relief service that you’re speaking to, you don’t ever hear a blanket promise of anything. They don’t sound overly hopeful. They will always ask to take a close look at all your financial papers to come up with a custom-made answer for you. There is no one-size-fits-all answer to these things. Often, they won’t even accept you. They’ll tell you upfront that there is nothing they can do to help you, given your situation. In general, the legitimate services will only accept one out of five applications. If they finally do accept you, they will draw a plan up for you that will usually involve your having to make payments for five years. You make a payment every month to the debt relief service, and they pay a slice out of it to your creditors.

The way to go then is…

You must never deal with a company that doesn’t seem to have a custom-made plan in mind. This should be what you look for when you try to find an honest service. It’s the only way that a service such as this can work. No matter what, it is never a good idea to respond to a service that resorts to cold-calling for new clients. Flyers and radio commercials aren’t good ideas either. Looking up the website of The National Foundation for Credit Counseling for a referral could be a good way.

Whatever service you do consider, you must make sure that you shop for the best offer. You could go to each company that you consider and see how they treat you. They should have an actual credit counselor who spends at least a half hour trying to grasp what your financial situation really is.

You should ask a lot of questions about what exactly they will do for you and what exactly is expected of you. They should be willing to talk about all of it.  According to the Consumer Federation of America, the fee involved should only be $50 or thereabouts. If they ask for a monthly maintenance fee, it shouldn’t be more than $30 or so.

It is always an excellent idea to talk to your local consumer protection office or the BBB before you make a move.