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Debt Management Scams

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The Basics of Debt Management Scams

Debt management scams often prey on people who are in financial distress and struggling to make ends meet. The scammers promise to help consolidate your debt or negotiate lower payments, but instead end up stealing your money. They may even guarantee that they can get your debt reduced or eliminated. The scammers will typically ask for an upfront fee before they do anything to help you. These scams can be difficult to spot, as the scammers are often very convincing. They may even use scare tactics, such as telling you that your debt will be sold to a collection agency if you don’t act now.

Common Tactics Used by Debt Management Scammers

There are several common tactics that debt collection scammers use to trick people into giving them money or personal information, such as:

  • Promising to lower your monthly payments or interest rates for an upfront fee.
  • Claiming they can get you out of debt in a short period of time.
  • Making false promises about their results.
  • Using high-pressure sales tactics.
  • Claiming to be affiliated with a government agency or program.
Common Types of Debt Management Scams

While there are many legitimate debt management programs out there that can help you get your finances back on track, there are also a number of scams that you should be aware of.

  • Debt Settlement Promise Scam: These companies will contact you claiming that they can negotiate a lower payoff amount with your creditors on your behalf for a fee. They may even tell you that they can get your interest rates reduced or waived entirely. In reality, these companies have no more power to negotiate with your creditors than you do.
  • Debt Consolidation Loan Scam: These companies will claim to be able to get you a lower interest rate by consolidating all of your debts into one monthly payment. They may even say that they can get you a lower monthly payment by consolidating your debts with a government program. In reality, these consolidation loans typically come with higher interest rates than the individual debts you are consolidating, and you will still be responsible for repaying the full amount of the loan plus any fees the company charges.
  • Advance Fee Scam: These companies will often charge you extremely high interest rates or upfront fees for their services. Many times these rates are simply a way for the company to make money off of you without actually helping you to pay off your debts.

Step 1:Recognize

Red Flags of a Debt Management Scam

If you are contacted by someone who claims they can help you manage your debt, there are some red flags to look for that may indicate that you are being scammed, such as:

  • The company asks for upfront fees before any services are rendered.
  • The company makes a guarantee that they can get your debts reduced or eliminated.
  • They don’t disclose all the terms and conditions of their services.
  • They pressure you into signing up for their services before you have a chance to research them.
  • They don’t have a physical address or they’re located in a foreign country.
  • They give you the runaround when you try to cancel their service.

Step 2:Immediate Actions

If you think you are the victim of a debt management scam, it is important to take action right away to protect yourself and your finances. Here are some steps to take if you think you have been scammed:

  • Keep all documentation related to the scam, including any emails, letters, or receipts. This will be helpful if you need to take legal action against the scammer.
  • If you provided financial information, like your credit card number or bank account information, contact your bank or credit card company right away. They may be able to help you cancel the transaction or get your money back.
  • If you paid using gift cards or a wire transfer, contact the issuer. They might be able to help you stop the transaction.
  • If you provided personal information, like your Social Security number, you may be at risk for identity theft. Contact the three major credit reporting agencies – Experian, TransUnion and Equifax – and place a fraud alert on your credit reports. This will make it harder for the scammer to open new accounts in your name.
  • Contact the Better Business Bureau (BBB). The BBB is a nonprofit organization that tracks complaints against businesses.

Step 3:Report

Reporting any type of cybercrime, including debt management scams, is imperative to help others avoid being scammed. As a society, the more people that report online scams and fraud, the more national reporting data that is collected, and the better chance law enforcement has to catch the criminals and decrease cybercrime.

Report to FTC

Step 4:Recover

Learn the Three Golden Rules to Spot a Scam

Scammers often utilize tactics to encourage you to act quickly and will use false information to persuade you to send money or personally identifiable information (PII). When faced with a questionable situation online, always follow the three golden rules to spot a scam:

Slow it down — Debt management companies often create a sense of urgency, trying to rush you into signing up for their services before you have time to do any research. They may be pushy and use high-pressure sales tactics. When making a decision to seek help with your debt, take your time to avoid being rushed into a bad situation.

Spot check — Do your research to double check that the debt management company is legitimate. Ask them to provide their full name and the company’s name, address, phone number, website address and email. Then, do an internet search of the company name followed by “scam” or “complaint.”

Stop! Don’t send — These debt management companies will try to pressure you into paying an upfront fee before disclosing all of the terms and conditions of their services. If they are pushing you to sign up and pay a fee before you’ve had time to do research, it’s most likely a scam.

Take 5 Steps for Better Online Security

Along with making sure you follow the three golden rules to spot a scam, it’s important to strengthen your online security to help avoid all types of online scams. Take action to improve your digital posture by following these steps:

  1. Implement Multi Factor Authentication (MFA): Passwords are generally easy for scammers to crack, and even if you use strong passphrases, there’s still the possibility that a cybercriminal can obtain your passphrase in a data breach. Implementing MFA is a great way to maximize your security and ensure that you are the only one who can gain access to your accounts. MFA should be implemented on all accounts where it is available. Check your account’s security settings to see if it is something you can set up.
  2. Update Your Privacy Settings: Privacy settings allow you to control your personal information (name, address, phone number, date of birth, financial details, photos or videos, etc) and how that information is used. Review your privacy settings on all of your accounts including your social media accounts. Consider restricting who can see your friends list, contacts, photos and posts.
  3. Activate Automatic Updates: Automatic updates are a set of changes to an app, software or operating system that are automatically pushed by the developer to fix or improve it. Oftentimes, cybercriminals take advantage of security flaws to plant malicious software on your devices. By activating automatic updates, you will automatically patch security vulnerabilities to protect your data.
  4. Use a Password Manager or Create Strong Passphrases: A password manager is a software tool that securely stores all of your login credentials in one place, allowing you to create and manage strong, unique passwords for all of your accounts. If you are unable to afford a password manager, use strong passphrases. A passphrase is a combination of random words or a sentence that is much longer and more complex than a typical password. Using a passphrase instead of a password makes it much harder for hackers to guess or brute-force their way into your accounts.
  5. Learn the Elements of a Phishing Attempt: Familiarize yourself with the elements of a phishing email. Phishing emails tend to include a sense of urgency and multiple grammar and spelling errors. If they are asking you to reveal personal information, be suspicious. If you get a strange email, try contacting the company another way to confirm they sent that email. If the email is suspicious, mark it as spam.

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