Why debt is a target for scams
When you are behind on a credit card, a medical bill or a personal loan, any offer to make it go away is tempting. Scammers know this. Some pose as debt collectors demanding immediate payment for debts you may not even owe; others sell "debt relief" programs that collect fees and leave you worse off.
Read also: Credit score: what really moves your number and Bank impersonation scams: how to spot fake messages from your bank.
Your rights with debt collectors
The federal Fair Debt Collection Practices Act and the CFPB's rules limit what third-party collectors can do. In general, they must send you a validation notice with the amount owed and the creditor's name, and you can dispute the debt in writing within the validation period. They cannot threaten you with arrest, use abusive language or call at unusual hours, generally before 8 a.m. or after 9 p.m.
If a "collector" refuses to send anything in writing, cannot tell you who the original creditor is or demands payment by gift card or wire transfer, treat it as a scam.
Source: Consumer Financial Protection Bureau, Debt collection.
How to negotiate safely
- Go to the source. Call the number on your original statement or log into your account on the creditor's official website or app.
- Ask for options: hardship programs, lower payments for a few months, a payment plan or a lump-sum settlement for less than the full balance.
- Get every agreement in writing before you pay anything, and keep records of dates, names and amounts.
- Consider nonprofit credit counseling. Reputable nonprofit agencies, many affiliated with the National Foundation for Credit Counseling, can set up a debt management plan, usually for a small fee.
Source: Federal Trade Commission, How To Get Out of Debt.
Five warning signs of a debt scam
- A call, text or email with a deadline of a few hours and a link to pay.
- A demand for payment by gift card, wire transfer, crypto or a payment app.
- A company that wants fees upfront, before it has settled or reduced any of your debt.
- A promise to erase accurate negative information from your credit report.
- A request for your online banking password or a verification code.
Settled debts can affect your credit and, in some cases, forgiven amounts may count as taxable income. See what moves your credit score.
Sources
- Consumer Financial Protection Bureau. Debt collection. https://www.consumerfinance.gov/consumer-tools/debt-collection/
- Federal Trade Commission. How To Get Out of Debt. https://consumer.ftc.gov/articles/how-get-out-debt
Frequently asked questions
Can a debt collector threaten to have me arrested?
No. Threatening arrest or jail for an unpaid consumer debt is not allowed. It is a common sign of a scam.
Should I pay a company upfront to settle my debts?
Be very careful. Charging fees before settling any debt is a major warning sign, and the FTC warns about scammy counselors who charge a lot before doing anything.
How do I know a debt is really mine?
Ask for a validation notice and dispute the debt in writing if anything looks wrong.
Will settling a debt hurt my credit?
It can, because the account may show as settled for less than the full amount. It is often still better than leaving it unpaid.
