Drowning in debt? Don’t fall prey to a “get debt-free” scheme

In a down economy, many parties offer to help people who struggle with bills and debt – but some are more scrupulous than others.

According to the National Association of Consumer Bankruptcy Attorneys, debt settlement scams are the No. 1 threat facing deeply indebted Americans today. As few as one in 10 consumers who sign up for debt settlement schemes end up debt-free in the promised timeframe.

“People pay $6,000 to $8,000 to these companies before they get any results,” says North Carolina attorney Ed Boltz, NACBA board member and incoming president. “By the time they realize, they are deeper in debt, and their credit’s ruined.”

Mounting credit card debt has become a reality of American life. Credit-reporting agency TransUnion recently released numbers that show the average credit card debt per borrower in the U.S. increased 4.9 percent to $4,996 in the July-to-September period, compared to the same time frame in 2011. As many try to dig their way out, they become easy victims.

Boltz says the most frustrating and common scam involves companies that are associated with a law firm or an attorney.

“So, what happens is the debtor pays the lawyer’s fees first for many months and only after that, does the company start negotiations to settle the debt,” Boltz says. “By then, the debtor is deeper in debt and in some cases is being sued by the creditors.”

Here’s how to avoid scams:

• Avoid companies that ask for attorney fees up front. Chances are, you will be paying off those fees while your debts keep piling. Instead, if you have some extra cash on hand, you could try negotiating with your creditor directly to reduce debt.

• Do some research on the internet. You could check with the bar association for the attorney’s record or look up the company with the State Attorney General’s Office or the Better Business Bureau. If the business has been fined or had to go through a recent million-dollar settlement, that’s a red flag.

• Find someone local. A local attorney, who can meet with you personally and discuss your options, is always better than a distant voice on the phone.

• Work with government-approved nonprofit credit counseling agencies. Many of them are closely monitored and therefore are safer bets than debt settlement companies.