Hidden Dangers Behind Soaring U.S. Credit Card Debt and Forgiveness Scams

Credit Cards

As credit card debt in the U.S. reaches alarming levels, consumers must remain vigilant against debt forgiveness scams.

At a Glance

  • Be cautious when seeking help from credit counseling or credit repair companies, as not all are legitimate.
  • Credit repair scams can worsen your financial situation and damage your credit.
  • The Consumer Financial Protection Bureau (CFPB) has taken legal action against companies like Lexington Law and CreditRepair.com for illegal practices.
  • Five signs of a credit repair scam include not explaining your rights upfront, requesting upfront payments, claiming they can remove accurate negative information, promising a ‘new credit identity,’ and having a difficult-to-understand contract.

Soaring Credit Card Debt and Increased Vulnerability

Credit card debt in the United States has reached a staggering $1.14 trillion, with the average household carrying a balance of nearly $8,000. With such financial burdens, individuals are often desperate for solutions, making them prime targets for scams that promise quick debt forgiveness. Authentic credit counseling services never require upfront fees and do not make improbable promises.

Legitimate credit repair companies provide clear information, including your rights and obligations. They will not demand immediate payments, nor will they promise to remove accurate negative information from your credit report. Reputable services are transparent about their methods and obtainable outcomes.

Identifying and Avoiding Scams

There are critical signs to watch for when assessing the legitimacy of a credit repair service. Companies not explaining your rights, requesting money upfront, or promising new credit identities are major red flags. The Consumer Financial Protection Bureau (CFPB) has taken action against organizations like Lexington Law and CreditRepair.com for such misconduct.

Consumers should also be wary of unsolicited phone calls, especially robocalls, and services advising them to stop paying their credit cards. Authentic debt relief services often come through reputable organizations like the National Foundation for Credit Counseling, and background checks with the Better Business Bureau can further validate a company’s credibility.

Regulatory Protections and Alternatives

The Federal Trade Commission (FTC) has implemented rules to protect consumers from predatory debt relief services. The Telemarketing Sales Rule prohibits for-profit companies from charging fees before settling or reducing debt and requires the disclosure of essential information. These regulations help consumers make informed decisions and avoid fraudulent practices.

“Unfortunately, when people are overwhelmed by debt and no longer can manage their payments, they become desperate and vulnerable,” says Cynthia Campos Delgado, founder and financial advisor at Campos Wealth Management in McAllen, Texas. “Companies offering to relieve them of that stress come out of the woodwork, but not all of those have good intentions.”

In addition to credit counseling, there are other reputable debt relief options, including debt consolidation and debt settlement plans. Always check with state attorneys general, the FTC, and the Better Business Bureau before committing to any service. Proactive measures, transparency from legitimate services, and consumer awareness can help mitigate the risks associated with debt relief scams.