This New Year, Don't Get Duped by Credit Relief Scammers

Now that 2012 has been officially ushered in, many Americans are trying to make good on their New Year's resolutions to get debt under control.

For some, that will mean strict adherence to a budget. Others, especially those with substantial amounts of credit card debt, may look into hiring a debt relief service.

It's good to get help with debt. However, some unscrupulous debt relief services make promises they can't keep in an attempt to bilk honest debtors out of their hard-earned money. Often, these debtors end up facing worse financial problems than they did before they hired the service.

Before you hire a debt relief service, do your homework to make sure they are trustworthy. The Federal Trade Commission has recommended some factors to consider when choosing a debt relief service:

• Be wary of upfront payments: Nearly every state has laws prohibiting debt relief companies from demanding a fee before they will work on your case. Still, this doesn't deter some companies. If a company tries to charge an upfront fee, report them to the state attorney general's office.

• Don't trust lofty promises: Companies that say they can settle your debt for "pennies on the dollar" probably can't. Your creditors have no legal duty to accept partial payment when you hire a debt relief service.

• Understand all the fees: Often, desperate debtors are lured with low introductory rates. Then, they are hit with surprise fees or asked to pay the company a portion of the debt that was written off. Don't hire a company that won't disclose all fees at the beginning.

• Choose a vetted debt relief service: There are many good debt relief and debt counseling services out there, but they are sometimes overshadowed by less-savory firms. If a firm has been approved by the National Foundation for Credit Counseling, there's a good chance they're honest dealers.

Remember, your creditors are under no obligation to negotiate with a debt relief service. Negotiating can be a good first step, but make sure you aren't throwing good money after bad.

Bankruptcy is the only guaranteed form of debt relief. If a bankruptcy judge discharges your debt or orders a payment plan, your creditors are required to comply.

If you are overwhelmed by debt, contact an experienced bankruptcy lawyer who can help you understand your best options.

Source: San Francisco Chronicle, "5 Ways Your Debt-Relief Firm is Scamming You," Brian O'Connell, Dec. 19, 2011