Debt relief scams aim to ruin your financial 2022 New Year's resolution

ByDiane Wilson and Bella Caracta WTVD logo
Tuesday, January 4, 2022
Debt relief scams aim to ruin your financial health in 2022
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Getting out of debt for 2022 is a popular New Year's resolution, and with the right strategy, it can be done.

Getting out of debt for 2022 is a popular New Year's resolution, and with the right strategy, it can be done.

If you're in debt, you're not alone. According to the Federal Reserve Bank of NY, "total household debt increased by $286 billion, to $15.24 trillion in the third quarter of 2021."

Right now there are a lot of companies who claim they will help you get out of debt. But before you hire a debt relief company, first take a look at your credit cards.

See if you can use a balance transfer offer to switch to a card with a lower rate.

Do your research through the Better Business Bureau; consumers nationwide filed more than 21,000 complaints against credit card companies in 2020 and 2021 with the BBB. The organization suggests you read the terms and contract very carefully as there may be big penalties if you miss a payment.

If you have multiple cards, decide which debt-paying strategy is best for you. Some experts recommend paying off cards with the highest interest rates first, but others recommend you pay off cards with the smallest balances first.

Also, try calling your credit card company to see if they will lower the current interest rate you have on a credit card.

Be very careful opting for help through just any debt relief company, as it could be a scam.

Some companies will promise to negotiate your debts on your behalf if you pay them a large up-front fee. It's a major red flag if a debt relief company tells you to stop paying your bills altogether and pay them instead.

Alyssa Parker with the BBB says, "A lot of times it's too good to be true. So don't rely on those companies. Really do the old true and tried things that typically get you out of debt faster than any company would be able to."

The BBB offers these warning signs of a debt relief scam:

  • A debt relief company asks for fees upfront 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.

There are many online tools to help you manage a budget and reduce your debt. Look into programs offered by the three credit bureaus. You could also talk to a non-profit credit counselor by contacting the National Foundation for Credit Counseling at 1-800-388-2227 or NFCC.

It's key to know the state law when it comes to fees that credit counselors can charge. In North Carolina, the fees that credit counselors can charge to set up and administer a debt management plan are restricted by state law.

Credit counselors cannot charge more than $40 to set up a debt management plan, and counselors can charge monthly administrative fees of no more than 10% of the monthly payment, up to a maximum of $40 per month.