7 Signs You’re Being “Sold” a Debt Relief Scam (And 5 Programs You Can Trust)

Many Americans are deep in the red. In fact, consumer debt surpassed $1 trillion within the past year, according to the New York Federal Reserve.

As people find themselves drowning in debt, they might become desperate for solutions. That makes them vulnerable to debt relief scams that promise quick fixes but deliver only more financial woes.

It's crucial to recognize the warning signs associated with these scams. Here are seven common signs of debt relief scams — followed by five legitimate programs and ways that can help you get out of debt .

1. Companies that reach out to you first

If a company contacts you with an unsolicited offer of debt relief services, you should view it as a major red flag.

Legitimate companies usually don't reach out to potential customers. Scammers often use high-pressure tactics to lure you in, creating a sense of urgency. So, always be cautious of unsolicited offers and do your research before engaging with any debt relief service.

2. Demands for large upfront fees

A telltale sign of a debt relief scam is the demand for significant upfront fees before any services are rendered.

Legitimate debt relief companies do not require large initial payments. The Federal Trade Commission (FTC) has rules that prohibit for-profit debt relief companies from charging fees before settling or reducing a consumer's debts.

If a company asks for a large payment before doing anything, it’s best to walk away.

3. Guarantees of results

No legitimate debt relief company can guarantee specific results. Debt situations are complex and vary from person to person, making it impossible to promise exact outcomes.

Be wary of any company that guarantees it will reduce your debt by a certain percentage or within a specific timeframe. Such promises are often too good to be true.

4. Claims of special methods for settling debt

Scam companies might claim they have exclusive techniques or special relationships with creditors that help them settle debts for much less than they are owed. However, these "special methods" are typically just marketing ploys.

Authentic debt relief companies use standard practices known in the industry, and there are no secret tricks that they exclusively use.

5. Promises to protect you

Scammers sometimes lure in victims with promises to protect debtors from lawsuits, wage garnishments, or collection calls. While legitimate debt relief services can help manage these issues, no company can completely shield you from legal action.

The reality is that only the decision to file bankruptcy can stop a creditor from filing a debt collection lawsuit against you.

6. Instructions to simply ignore creditors

Any company that advises you to stop communicating with your creditors could be engaging in a scam.

Ignoring your creditors can lead to more severe financial consequences, including lawsuits and deeper debt, thanks to late fees and interest. Legitimate debt relief programs work with you and your creditors to find a manageable solution.

7. Pledges to help you without seeing your documents

Be cautious of companies that promise to help you without thoroughly reviewing your financial documents.

A legitimate debt relief program requires a detailed understanding of your financial situation before offering appropriate advice and solutions. If a company doesn't ask for your financial details, it’s a sign they may not have your best interests at heart.

5 legitimate ways to settle your debt problems

Now that we have covered some common signs of scams let’s look at reliable ways to manage your debt. These strategies can help you regain control of your finances without falling prey to scams.

1. Consult with a nonprofit credit counselor

Nonprofit credit counseling agencies offer free or low-cost services to help you manage debt.

These counselors can help you craft a budget and can offer other advice. The National Foundation for Credit Counseling (NFCC) can help you find a legitimate credit counselor.

Grow Your $$: 11 brilliant ways to build wealth after 40

2. Create a debt management plan

A debt management plan (DMP) is a repayment plan set up by a credit counseling agency in consultation with your creditors.

A DMP can help you to make full or partial payments to creditors over time until you finally pay off debt for good.

3. Consolidate your debt

Debt consolidation allows you to lower the interest rate on your debt. For example, you might use a low-interest personal loan to pay off your debts, or transfer your debt to a credit card that charges no interest for a specific period.

This approach can save you money on interest and simplify your payments. With some of these techniques, it’s important to pay off the balance before the introductory period ends so you avoid high interest rate charges.

4. Consider debt settlement

With debt settlement, you negotiate with creditors to pay a one-time sum that is less than the total amount you owe.

While this can significantly reduce your debt, it may also negatively impact your credit score. It’s important to weigh the pros and cons before choosing this option.

Retire Sooner: Take this quiz to see if you can retire early

5. File for bankruptcy (as a last resort)

Bankruptcy is an option when all else fails. It can provide a fresh start if you are overwhelmed with debt.

However, it’s important to consider the negative implications that filing for bankruptcy can have on your credit score. Chapter 7 bankruptcy may remain on your credit report for up to 10 years. Meanwhile, Chapter 13 bankruptcy stays on your credit report for seven years.

Both options have long-term impacts on your credit score, but they can be viable solutions when other methods have failed.

Bottom line

By recognizing the warning signs and knowing which programs to trust, you can make informed decisions to manage your debt effectively.

Always research options thoroughly and consider consulting a nonprofit credit counselor to guide you.

Have you explored all your options and checked your financial health recently? Making informed financial decisions and supplementing your income can help you plan for a stress-free financial future.

More from FinanceBuzz:

Make Money: 7 things to do if you’re barely scraping by financially.