Top 5 Reasons You Should Never Pay a Debt Settlement Company Upfront Fees
"Making it Rain" for a Settlement Company Will Not Help You
These days there is more confusion in the Debt Relief market than ever with the passage of new consumer protection laws in 2010 banning debt settlement companies from charging their clients fees before they perform settlements.
Sadly, this has not stopped numerous shady operators from looking for loop holes and continuing to gouge consumers with high, unnecessary and unethical upfront fees.
Legality aside we put together a list of the Top 5 reasons that a consumer should never consider enrolling with a debt settlement company that charges their fees before the settlements are performed, regardless of what their excuses are for doing it. The bottom line is that it will put the consumer in a bad position and here is why.
1. You will miss out on some great settlement offers.
Often times there are great deals that can be made with an original creditor before a debt has been charged off. If you are wasting all of your money on fees in the very beginning stage of a settlement plan, then you are not going to have any money available to fund these good deals that come along early in the process.
2. You have an increased likelihood of getting sued.
Paying most or all of your fees over the first year or two in a debt settlement program means that the creditors will be taking a back seat to the debt settlement company for your money. The longer you take to reach an agreement with your creditor and settle the debt, the more likely are your chances of being served with a lawsuit by the creditor.
3. The Settlement Company is less likely to deliver the promised results if they have been paid in full, and most often they will not offer any refund of the fees already paid if you are not satisfied.
This is probably the most obvious reason of all. None of us would ever pay a contractor in full for a kitchen remodel before the work was completed and inspected. The same holds true for a debt settlement company. Debt settlement companies sometimes make very lofty promises, and the only way to hold their feet to the fire is if they have to prove they can make good on their claims before collecting all of your money.
Once they are paid most or all of their money, you lose all leverage to make them perform if you feel they have not lived up to the promises that convinced you to enroll in their program in the first place.
4. You are very likely to be sold a service that you do not qualify for and have little chance of success with.
The reason the FTC stepped up and passed new laws in 2010 banning the practice of settlement companies charging upfront fees, was because there was and unfortunately, still continues to be wide ranging consumer abuse. Consumers were routinely pitched debt settlement programs that they had very little hope of succeeding with because the debt settlement sales person knew they would be collecting a majority of the fees during the beginning stages of a settlement program.
So even if a consumer failed to fund any settlements, the sales person and the settlement company were still getting paid, creating an incentive for the company to enroll any consumer that they could, regardless of proper qualification for the program. If a company does not charge fees until after successful settlements are performed, then it is in their best financial interests to only enroll consumers who are likely to be successful.
5. In most cases, charging upfront fees is illegal for a settlement company to do, and if they are caught, and subsequently shut down, all of their unfortunate clients will be left to suffer the consequences.
The new law was designed to eliminate this abusive practice of taking fees from cash strapped consumers before beneficial results were produced. Unfortunately there will always be individuals and companies that insist on putting excessive profit before people. The debt settlement companies that have continued this practice in spite of the new law and the overwhelming evidence that this practice is devastating to consumers, are still out there looking for new targets every day.
They will eventually get caught and very likely shut down by regulators. When this happens, their clients will not only be left to fend for themselves, but it is very unlikely that they will receive any refund for the service fees already paid.
Regardless of any excuse given, front loaded debt settlement fees is an abusive practice, it was banned for a reason, and now you have the knowledge to insure that you will not be the next victim.
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Ya, I got suckered and scammed by a company that charged me 3000 dollars and then did nothing. I wish I would have heard of you guys sooner. Now I am going to have to file bankruptcy. So this article is true, don’t pay those debt companies that want upfront money, because they just want your money.
Hello Jenny,
I am sorry to hear about your experience. It is unfortunate that there are many players in this industry that don’t operate in a way that is in the best interests of the consumer. If a company is wanting to charge much of their fees over the first year or so into their program, then my only recommendation would be to look elsewhere first, because there are companies that only charge fees on performance
Excellent blog! I wanted to comment on how clean looking your website is. Thank you very much for sharing this information regarding debt settlement companies who are ripping off consumers and charging all of their fees upfront. I have been looking into different debt relief options for awhile now and the more I look the more confused I get. It is difficult to know who you can trust. It feels like everyone is just focused on trying to sell you something and not on actually trying to help you.
Hello Mike,
Thank you for the complement on the site. I know how you feel and it can be frustrating at times. If you would like to give us a call and let us know about your situation, we can give you a good idea as to what you should be able to do and whether or not we can help you.
I completely agree that these debt settlement companies who have been charging upfront fees and ripping people off should be regulated out of existence. I appreciate that there are some companies out there like New Era Debt solutions who were not charging all of their fees upfront, even before the new law was passed forcing other companies to follow suit.
Hello John,
Thank you for your kind words.
I am thinking that you don’t charge fees upfront since you did this writing. Is there a good way to tell if a company charges their fess upfront or do you have to get the sales pitch from all of them only to find out at the end they want all there money first.
Hey Robert,
Before the new law passed that forced companies to not charge fees upfront, it was certainly very difficult because most all of them did.
We have always charged the majority of our fees on performance because we are focused on the success of our clients. (Sorry, shameless plug for our company but you can’t blame me for being proud
)
These days though most companies do not charge their fees upfront and will usually advertise that all over the place. So now you have to be much more vigilant in researching debt settlement programs. It isn’t enough just to see if they don’t charge their fees upfront.
You need to look for a long and successful track record, the amount of the fees they are charging, very little to know complaints with the BBB, great customer reviews online etc..
Could I possibly post this to one of my websites on this subject? I’d give you full credit, of course. Email me what you think.
Wow Jennifer Aniston!!!
Unfortunately this appears to be a spam comment and I was going to delete it, but felt very proud that “Jennifer Aniston” stopped by our new blog.
I don’t think the real Jennifer Aniston is currently looking around the web for information on debt relief.
You would think it would be easy to spot these scams and not agree to pay upfront fees to these debt settlement companies, but when you are in a stressful situation like that and they start telling you all the things you want to hear, it is easy to start telling yourself that everything will work out if you just have the settlement company fix it.
I think you hit the nail on the head Marcus. When consumers are feeling pressure, be it sales, financial, or whatever kind of pressure, that creates stress and makes them vulnerable to people that are simply telling them what they want to hear. It is unfortunate, but it is true that consumers dealing with debt are more vulnerable to scams and rip offs because they just want someone to take care of the problem and let them get their lives back to normal.
Hi, are you accepting any advertising on your website? I’d love to purchase a banner for a month or two to my website which is closely related. Please let me know. -Bob
Hey Bob,
Thank you for asking and I am glad you think highly enough of our new site to want to advertise. However we created this resource to be an avenue for consumers to learn and get their questions answered about New Era, the debt relief industry or pretty much any debt or credit related question they had.
At this time we are not putting any advertising on our site and I don’t anticipate that will change anytime soon.
Thanks for asking though.