The Worst Debt Relief Scams and How to Avoid Them

This is a guest post by Jack Reed. He is a financial writer and offers advice on various debt management programs and debt relief scams. He can be contacted at jackrd3 AT gmail DOT com

Many people who are immersed in hefty debts look out for some quick and easy solutions to solve their debt issues. In such a situation, the promise of a debt relief company to put an end to your debt problems comes as a great relief.

 

 

Thousands of people enroll themselves with such companies with the hope of getting rid of their overwhelming debts. The high hopes that these firms instill in the minds of the consumers convinces them to the core.

But a huge number of complaints have been lodged with the FBI, the Better Business Bureau (BBB) and the National Consumer Debt Council regarding the con activities employed by these firms. Numerous firsthand experiences also cast a doubt on the promises made by such companies.

What are the scams the debt relief companies indulge in?

Before opting for the services of any debt relief company, make sure to get yourself acquainted with the possible scam activities that many of these companies often indulge in. A thorough knowledge about such scams would actually help you to avoid falling prey to a fraudulent debt relief company.

Neal’s Note:  Although this is indeed an industry littered with scam artists, one company that might work for you is Lexington Law.  Check out my review to find out more.

Debt Settlement Scams

A large number of people resort to debt settlement to put an end to their debt woes. Debtors often think that it is a fruitful way to get their loans settled through negotiation. Fraudulent settlement firms, which only aim at making money, indulge in the following activities:

1. They will not provide you with the complete details as to how they go about with the settlement process.
2. They assure you that you will not receive any harassing call from your creditors, but in reality they do not take any action toward ensuring this.
3. They deceive the consumers into thinking that they can help them out with huge savings on their debts. And they hide the actual amount which the consumer needs to pay to the settlement company as the service charge.
4. They might ask you to stop paying your dues to your creditor and suggest you open a savings or checking account. The company usually keeps the details of this account and draws its monthly fees from here. This can lead to huge losses for you over time.

Debt Consolidation Scams

Debt consolidation is yet another debt relief service that people opt for to get out of debt. The dread of bankruptcy and / or foreclosure makes the consumers resort to debt consolidation services, and a fraudulent debt consolidation company makes consumers its target in the following ways:

1. The company fixes an extremely low monthly amount that you are required to pay. This makes it quite probable that the company will raise this amount once you enroll for their consolidation program. A genuine company would not go for fake hidden costs.
2. Most of the scam companies demand a lofty upfront fee which can shoot up to thousands of dollars.
3. These companies can ask you for your account number, Social Security number or other personal information before providing a quote. This is not a good sign. Ideally, a debt consolidation company must provide you with their quote by knowing only your creditor’s names, balances and their interest rates.

Fake Credit Repair

There are many factors that can lead to a bad credit score. Casual use of credit cards, emergency expenses and even job loss are some of the significant ones. To help consumers get rid of credit problems, many companies offer credit repair service.

Again, you are required to pay a high upfront fee for the services. The company asks you to pay this amount through a demand draft, and you may even be asked to disclose your bank account information. This is typically followed by a credit analysis session with you. Here lies the company’s trap! The credit analyst coaxes you to buy their services, and eventually you may find that they have processed a debit on your checking account. Once you have paid them the upfront fee, the company hardly bothers to repair your credit report. (Please read “Correcting Your Credit Report Errors Yourself “)

How to avoid such scams?

This is completely in the hands of the debtor. It is your duty to keep yourself aware of all these malpractices. Check if the company has a clean record of effective debt services. Discuss the company details with your friends and acquaintances and, if possible, with a debt attorney.

You can even Google the name of the company and check online discussions, suggestions and updates regarding the company you have zeroed in on. Also, always try to get the company’s credentials from the BBB or the National Business Reporting Bureau (NBRB).