Not All Debt Consolidation Offers Are Created Equal

Knowing the good from the bad

Paying off debt can be a long and frustrating journey. Knowing this, many debt relief companies promise quick and easy solutions with amazing outcomes, but they can often do more harm than good. 

Mistake #1: Stop paying your creditors. 

Instead of paying your creditors, you’ll be asked to send fixed monthly payments to a special escrow account for which you pay a fee. The idea is that when the account reaches a certain dollar amount, the debt relief company will offer your creditors lump-sum payments to settle your debt. Even if the company succeeds in negotiating a payoff amount that is lower than your original total amount owed, you’ll be left with a new set of money woes:  high fees, a damaged credit score, and potentially a higher tax bill. 

Mistake #2: Trust blindly.

On June 28, 2024, the Federal Trade Commission (FTC) shut down a student loan debt relief scheme that defrauded consumers of more than $20.3 million. The scammers posed as affiliates of the Department of Education, tricking people into believing they were legitimate. Before you agree to work with a debt relief company, take the time to ensure they aren’t misrepresenting themselves.

Mistake #3: Answering an unsolicited advertisement.

If a debt relief service reaches out to you unsolicited, it’s a major red flag. Scammers often send urgent mailers with phrases like “FINAL NOTICE” and promises such as “complete loan forgiveness” or “tax-free loan forgiveness”. When you call the number provided, telemarketers convince you that you can achieve loan forgiveness within a few months or years. Many victims have reported that after signing up and making payments, they never received loan forgiveness, and the scammers never applied for it on their behalf. Perpetrators also make unsolicited calls to cell phones, further pushing their fraudulent schemes.

Mistake #4: Paying a fee.

This is the most obvious sign of a debt relief scam. Legitimate services will not ask for fees before providing help. If a person or company promises to help you eliminate your debt but demands payment upfront, they are likely trying to deceive you. Cut off contact immediately. 

Do this instead!

If you want to discuss debt relief, make sure you’re working with a trustworthy organization and don’t be afraid to stop the process if anything feels like it isn’t in your best interest. 

• Credit Counseling: Nonprofit credit counseling agencies can help you create a plan to manage your debt without charging high fees. We recommend our financial wellness partner, Balance.
• Debt Consolidation: Bundling your debt into one loan may save you money on interest and make it easier to manage. NorthCountry offers debt consolidation loans and our experts can help you choose the best solution for your situation. 

If you do find yourself entwined in a scam, make sure to contact NorthCountry ASAP. We can help advise you on how to prevent further loss and keep your money safe.