Working to pay off debt? What Arizonans should know about settlement scams

Christina Kredit

Submitted photo

Debt settlement scams can lead to financial losses and damage to your credit score. To avoid that, always research the company, ensure that everything is in writing and talk to a financial expert before signing up for anything.”

Paying off debt can be challenging, but falling victim to a scam while doing it can make a hard situation even worse.

In 2024 alone, American consumers lost over $12.5 billion to fraud, according to the Federal Trade Commission, a 25% increase from 2023. For many people already feeling stressed by looming debts, recognizing what’s real and what’s not can be difficult. Promises to eliminate debt or settle it for pennies on the dollar should be avoided, no matter how real and intriguing they sound.

How debt settlement scams work

Typically, the first people targeted by scammers are those actively searching for debt relief options and will reach out by phone or appear in online searches. The scammers assure you they can diminish your debt or settle it for less than what you owe. Once they have you hooked, they may pressure you to act quickly and send large upfront fees.

In many cases, there is no written contract, or the agreement is intentionally vague. Some companies even tell you to stop all communication with your creditors, which can cause missed payments and increased interest, leading to even more credit damage.

Red flags to stay away from

Many debt settlement companies often cause more harm than good to your financial plan. Often, they make promises that aren’t true, charge unreasonable fees and leave your credit and debt worse than before you contacted them. Even the legitimate debt settlement companies can lead to a long-term financial impact if you’re not careful.

If you’re ever contacted by a company offering to “fix” your debt, these red flags are clear signs to walk away:

• They request large upfront payments.
• There is no written contract, and the terms are vague.
• They tell you to stop communicating with your creditors.
• They pressure you to act immediately.
• They claim to be affiliated with the government.
• They reach out to you unsolicited.

No reputable organization will ask for payment before doing any work. When it comes to debt help, if it sounds too good to be true, it typically is.

Learn about safe alternatives

Instead of risking your financial future on a questionable service, consider reaching out to a nonprofit credit counseling agency. Organizations such as GreenPath offer certified financial counselors who can help you create a budget, review your credit report, and develop a structured debt management plan.

Debt management plans won’t eliminate all of your debt, but they can help organize it into a monthly payment that’s more manageable. Reputable debt management plans come with reduced interest rates and have transparent contracts that focus on long-term financial wellness.

You can also explore other options through your financial institution, including:

• Debt consolidation loans, which combine several debts into one manageable payment.
• Balance transfer credit cards that offer low or zero-interest introductory periods.
• Home equity loans, if you own your home and qualify.

Each option has its pros and cons, and the right path depends on your unique financial situation.

Why it matters

Debt settlement scams can lead to financial losses and damage to your credit score. To avoid that, always research the company, ensure that everything is in writing and talk to a financial expert before signing up for anything.

If you’re unsure where to start, your credit union is a great resource. Visit our fraud resource center to learn more.

Editor’s note: Christina Kredit is vice president of marketing for Copper State Credit Union, which has branches in Anthem, Glendale, Goodyear, Payson, Phoenix and Surprise. Please send your comments to AzOpinions@iniusa.org. We are committed to publishing a wide variety of reader opinions, as long as they meet our Civility Guidelines.