(InvestigateTV) —Isabel Patterson self-admittedly struggles with her finances.
“I’ve not historically been great with financial matters, which is why I got into debt,” Patterson said.
In total, Patterson found herself with more than $25,000 in credit card debt. That, coupled with her mother’s encouragement, is why after moving from Washington, D.C. to Richmond, VA, she decided to look for resources to help her keep a better handle on her finances, as well as raise her credit score, which at the time sat in the low 600s.
“The way that I struggle with money is just credit cards are not a friend,” she said.
Patterson’s mom suggested turning to a nonprofit credit debt agency to help negotiate lower card payments. That suggestion led Patterson to Money Management International, a nonprofit credit debt counseling agency.
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“There’s a stigma around women having debt. There’s a stigma around if you can’t manage your debt, then you must be bad at managing other things in your life,” Patterson said.
Now, Patterson keeps tabs on where every dollar goes in a detailed spreadsheet.
“I like to track,” she said. “I go into my credit card app every time I make a payment and see it going down.”
Patterson’s case exemplifies what many are experiencing, as the country’s collective credit card debt surpassed $1 trillion for the first time.
Like Patterson, some have turned to debt relief agencies – though not all have had positive experiences.
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Nonprofit vs. for-profit debt relief agencies
Debt relief agencies offer to be a middleman between credit bureaus and the debt collector.
However multiple government agencies and the Better Business Bureau are warning consumers to be careful when dealing with the debt relief industry.
From 2020 through the first half of 2023, the BBB received more than 11,000 complaints and almost 900 negative reviews about debt and credit assistance, which the agency said revealed a “pattern of misleading and sometimes fraudulent claims.”
Some consumers reported that companies failed to deliver promised debt reduction or improve in their credit scores, and often charged unexpectedly high fees for services upfront – a red flag, according to the BBB.
In 2023, the Federal Trade Commission went after seven companies for debt relief service and credit repair scams.
Marla Puckett has been working with Money Management International – the company Patterson turned to for help – as a senior certified credit counselor for 20 years.
In the past year, Puckett has seen an increase in the number of consumers looking for assistance with their finances.
“We had a 45% increase of clients coming to us from this point last year,” Puckett said. “With everything going up in price, people are having to depend on those credit cards because their incomes are staying the same, but their expenses are going up.”
Similarly, Puckett said she’s seen a rise in consumers reportedly receiving calls from what they believed to be a debt relief program.
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“I get calls all day long from folks that are like, ‘You know, I got a phone call from this agency, and they want to help me with my debt,’” Puckett said.
She said some of these for-profit organizations offer bad advice, like telling consumers to stop paying their bills, ultimately worsening their situation.
InvestigateTV wanted to learn how many consumers are getting duped by these fake “debt relief” companies. Our team analyzed hundreds of cases against debt relief companies and found that since 2005, the Federal Trade Commission has banned more than 400 companies and individuals from assisting with any form of debt relief.
More than half a million consumers were affected by the banned companies, with the federal government returning more than $41 million in stolen money.
Some bad actors claim to reduce consumers’ credit card interest rates. Others target people with outstanding payday loans. The most recent case pursued by the government was against a business that reportedly tricked student loan borrowers into paying illegal upfront fees by promising to reduce or eliminate their student loans.
InvestigateTV also found that scammers and copycats are turning to social media sites to promote their services.
Our team found dozens of accounts claiming to be the same relief groups, often using words like “professional,” “government,” or “USA” in an attempt to increase their legitimacy.
‘I think it’s incredibly important to vet who you’re talking to’
Puckett said many of those who have filed complaints about the debt relief industry dealt with a for-profit company.
“They do the dispute; it drops off the credit report. Six months later it magically appears back on the credit report,” Puckett said. “And then you’re right back to where you started with less money in your pocket because you paid this organization to do that for you.”
She said the for-profit credit debt relief programs tend to up their fees and have funding for marketing.
Puckett warned there are three signs to watch out for:
- The company asks you to stop paying your bills
- The company requests large upfront fees without receiving any of your financial information
- If a company contacts you first
Bankrate Financial Analyst Ted Rossman offered similar advice on airing on the side of caution when agencies use words like “debt relief” or “debt settlement.”
“The lender doesn’t even have to take the offer,” Rossman said. “They could decline the settlement offer and pursue other payment methods, like they could sue you or they could…send you to collections.”
Patterson urged others to do their homework before they provide any of their personal information or sign any agreements with an unqualified company.
“I think it’s incredibly important to vet who you’re talking to,” she said. “The internet makes it incredibly easy to find people and to know what’s good and what’s bad, but you have to do your own research.”
For Patterson, credit counseling was a life changer.
“It’s helped me understand my own spending habits, how I can work on those, what my triggers are, how I can avoid getting into more debt,” Patterson said.
Her score is now in the 700s – a personal best – and she has a clear vision of her debt-free future.
Associate producer Charlie Roth contributed to the research for this report.
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