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Upfront Fees to Avoid with Business Debt Relief Companies

If your business is struggling with debt, you may be tempted to turn to a debt relief company for help. However, not all debt relief companies are created equal. Some charge hefty upfront fees before providing any services. Here’s what you need to know about avoiding these types of companies.

What are business debt relief companies?

Business debt relief companies offer to negotiate with your creditors to reduce or eliminate your business debt. They may promise to help you avoid bankruptcy, stop collection calls, and lower your monthly payments.

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However, the services they actually provide can vary widely. Some companies are legitimate and employ trained debt settlement specialists. But others are scams that charge high fees and fail to deliver.

Why you should avoid upfront fees

Some debt relief companies charge an upfront fee before settling any of your debts. They may ask for hundreds or thousands of dollars before they even contact your creditors. Unfortunately, this business model can lead to abuses.

Here are some reasons to avoid companies that demand upfront fees:

  • You’re paying for undelivered services. There’s no guarantee the company will successfully negotiate debt relief for you.
  • Upfront fees deplete money you could use to pay creditors. This can damage your credit and put you further behind.
  • High upfront fees are a red flag the company cares more about making money than helping you.
  • Some companies take the fees and provide little or no debt relief services in return.

Instead of paying upfront, you should look for companies that charge fees as a percentage of enrolled debt as it is successfully settled. This payment model better aligns incentives.

What does the law say about upfront fees?

The Federal Trade Commission (FTC) prohibits debt relief companies that use telemarketing from collecting any fees before settling or reducing a customer’s debt. This ban on upfront fees went into effect in 2010.

Some key facts about the FTC’s Telemarketing Sales Rule:

  • Applies to for-profit debt relief companies contacting potential customers via telephone
  • Prohibits collecting fees before renegotiating, settling, reducing, or altering a customer’s debt
  • Does not apply retroactively to customers who enrolled before October 27, 2010
  • Advance fee ban protects consumers from being scammed out of money

The FTC rule aims to stop debt relief companies from charging consumers substantial fees without first delivering results. Consumers have the right to avoid paying upfront fees when seeking debt relief services.

What are some typical upfront fees to avoid?

If a business debt relief company demands any of the following fees upfront, you should think twice before paying:

  • Account set-up fees – Charges for opening your account, processing paperwork, etc.
  • Consultation fees – Charges for initial consultations and discussions about your debt situation.
  • Negotiation fees – Fixed charges the company claims go toward negotiating with your creditors.
  • Service fees – Ongoing monthly fees the company charges for managing the debt relief process.
  • Maintenance fees – Monthly account maintenance charges that provide no direct benefit.
  • Legal fees – Upfront charges for attorneys that will supposedly be involved in the process.

While these fees may seem standard in the debt relief industry, it is often illegal for companies to collect them before settling your debts. Avoid any company that demands upfront payment.

What are signs of an upfront fee scam?

Here are some red flags that a business debt relief company may be running an upfront fee scam:

  • Makes unrealistic claims about slashing debt by 50% or more
  • Pressures you to pay high fees right away
  • Tells you to stop communicating with creditors
  • Says they can make debt totally disappear
  • Claims special connections with creditors and collectors
  • Refuses to provide a detailed, written contract
  • Has many complaints filed against them with the FTC or state attorney general

No legitimate company will promise fast and easy debt relief without knowing the specifics of your situation. Be wary of language designed to scare or pressure you into paying immediately.

What are alternatives to debt relief companies?

Business debt relief companies are not your only option. Here are a few alternatives to consider first:

  • Negotiate with creditors yourself – Contact creditors directly to request lower interest rates or modified payment plans. Often, creditors want to help businesses repay debts and stay solvent.
  • Work with a nonprofit credit counselor – Reputable credit counseling agencies offer free or low-cost services to help analyze your debt and budget.
  • Consider bankruptcy – Filing for bankruptcy protection stops collections and can discharge some business debts. Consult an attorney to see if it’s right for your situation.
  • Improve business practices – Growing revenues and cutting costs may provide debt relief without involving a third party.

The right solution depends on your specific business debts and budget. Avoid high-fee debt relief companies and first look at other options.

What should you look for in a debt relief company?

If you do decide to work with a debt relief company, choose carefully. Look for these signs of a reputable company:

  • Charges fees based on a percentage of settled debt (typically 15-25%) rather than upfront fees
  • Clearly explains services, fees, and your legal rights in a written contract
  • Has trained debt specialists who provide customized plans for your situation
  • Is accredited by independent organizations like the American Fair Credit Council
  • Allows you to review and approve any settlements before agreeing
  • Provides ongoing support, advice, and financial education
  • Has been in business for several years with positive reviews

Take time to research any company thoroughly before sharing personal financial information. Check for complaints with the state attorney general and local Better Business Bureau.

What can you do if you already paid upfront fees?

If you already enrolled and paid upfront fees to a debt relief company, don’t panic. Here are some steps to take:

  • Review your contract and receipts to understand cancellation policies and refund rights.
  • Contact the company in writing to request a refund of unearned fees.
  • File a complaint with the FTC if the company charged upfront fees illegally.
  • Consult an attorney to explore legal options for recovering lost money.
  • Notify your state attorney general about dishonest business practices.
  • Warn others by leaving online reviews detailing your experience.

While results aren’t guaranteed, taking action quickly gives you the best chance of getting your money back or exiting the contract. Don’t let predatory companies profit at your expense.

The bottom line on avoiding upfront fees

Reputable debt relief companies don’t demand upfront fees before providing services. Federal law also prohibits this practice when telemarketing is involved. If a company pressures you to pay immediately, it’s likely a scam.

Protect yourself and your business by being an informed consumer. Research debt relief alternatives and know your rights regarding fees. Your hard-earned money should go toward resolving business debts, not lining a scammer’s pockets.


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