By: Alicia Mina
You’re exploring your options for eliminating your debt and come across debt relief programs. Before you sign up for anything, you want to know more: What is a debt relief program, exactly? And how can you tell the difference between a legitimate program and a too-good-to-be-true scam? These are great questions that any diligent consumer can benefit from asking so they can pursue the right debt solution for their circumstances.
What Is a Debt Relief Program—And Does It Work?
Debt relief is a rather broad term that may refer to any number of strategies meant to reduce or eliminate debt. The more specific type of program many consumers choose to pursue is called “debt resolution,” also known as “debt settlement.”
As the Federal Trade Commission writes, debt settlement programs “typically are offered by for-profit companies, and involve the company negotiating with your creditors to allow you to pay a ‘settlement’ to resolve your debt.” The goal is to reach a settlement that’s less than the full amount you owe on outstanding unsecured debt, like credit card balances or medical bills.
Program enrollees set aside a certain amount of money each month, transferring it into a special account they control. This may occur in lieu of repaying creditors, which means collection calls will not stop throughout this process. When this account reaches a certain threshold, professional negotiators attempt to settle with creditors on behalf of clients. If successful, the accrued money goes toward paying down the debt for less.
As with any debt relief strategy, settlement comes with certain risks. Consumers can only reap the benefits of resolution if they can commit to making payments for as long as it takes, often between 24 and 48 months. There’s also no magical guarantee it will work—although chances are higher if you work with a reputable program with proven experience settling debts.
Legitimate Programs vs. Debt Relief Scams
The first way to discern the legitimacy of a debt settlement program is by examining its track record. Has it actually settled debts? Or is it just saying that it can? Third-party reviews are a good indicator of past performance, and it will never be difficult to find ratings and reviews about a reputable company. ConsumerAffairs offers more than 13,500 Freedom Debt Relief reviews for consumers to peruse, easily sortable by date and helpfulness.
Avoiding debt relief scams also requires looking out for common red flags that might indicate a company is less-than-scrupulous. According to the Consumer Financial Protection Bureau, consumers seeking debt relief should avoid companies that:
- Charge fees up front before any debts have been settled.
- Promises a certain percentage reduction on how much you’ll owe.
- Peddles a “new government program” meant to help bail consumers out of credit card debt.
- Guarantees consumers it can eliminate their debt.
- Orders consumers to stop communicating with their creditors completely.
- Claims it can put an end to debt collection calls and lawsuits.
- Promises outright it can pay off unsecured debts “for pennies on the dollar.”
Legitimate programs will make sure you’re an eligible candidate and good fit before enrolling you. If a program is willing to accept you without an evaluation—and if the program is hesitant to educate you about risks and options—then it could be a scam. Consumers can protect themselves by doing their research and working with a program that has plenty of successful debt relief under its belt.
Before you enroll, know the differences between legitimate debt relief programs and scams. Then make sure the program you choose is a good fit, and that you know the terms before signing your name on the dotted line.