AARP Eye Center
Credit cards. Medical bills. Student loans. When debt seems like a hole you’ll never climb out of, a phone call, email, website or ad promising to settle your liabilities for pennies on the dollar can be awfully tempting. But proceed with care: Some debt relief offers are scams that will dig you in even deeper.
There are reputable companies and organizations that can help you get out of the red. They can advise you on budgeting and money management, negotiate concessions with creditors or set you up with a plan to put away money each month to pay down your debts, usually over a period of years.
Scammers, on the other hand, offer sham “guarantees” to get you out of debt quickly and cleanly — and, crucially, “they ask you to pay them before they do anything for you,” says the Federal Trade Commission (FTC). That’s illegal, and a big red flag that your would-be debt savior isn’t on the up-and-up. (Legitimate debt relief firms do charge for their services but can collect only when they get results.)
Some take your money and run; others will string you along, collecting payments and making promises while you fall farther behind on delinquent accounts. The FTC received 20,590 consumer complaints related to credit and debt conseling in 2021, more than in the prior two years combined.
Student loan debt, which has ballooned to $1.6 trillion and is a growing burden for older Americans, is an especially ripe market for fraudsters, who collect advance and ongoing fees with bogus promises to enroll customers in government debt-forgiveness programs. Amid the economic anxiety caused by the coronavirus pandemic, consumers have been targeted by scam robocalls offering student loan replayment help and other debt assistance, the Federal Communications Commission reports.
Even with legit companies, debt settlement carries considerable risk. Many firms instruct clients to stop paying their debts, on the premise that this will compel creditors to negotiate a reduction. It might — but creditors are under no obligation to settle rather than, say, sue, and in the meantime you could accrue interest and penalties and damage your credit score. Some firms don’t fully explain the potential consequences, according to the FTC. The commission encourages consumers to carefully weigh a range of options when looking for ways to dig out of debt.
Warning Signs
- A debt relief company asks for fees up front, before it settles any debts.
- The company guarantees it can eliminate your debt or reduce it by a particular amount in a set period of time.
- The company advises you to cut off communication with creditors.
- The company won’t send you information about its services unless you provide financial information such as credit card account numbers and balances.
