How to spot and avoid debt consolidation scams

Scam debt consolidation firms mainly hunt on people who are desperate in search of a way out to their mounting debt problems. People whose credit scores are bitter or already ruined often fall prey to debt consolidation scams.

While the legitimate ones help you keep calm and stay afloat, the scam companies take advantage of your situation and put you farther in debt. They make your situation worse and by the time you pay off, these firms manage to take from you almost twice the amount you actually owe.

How to identify & avoid a debt consolidation scam

If you are in debt and going to opt for the services of a debt relief company, make sure you know how these scam companies operate so that you can identify them and stay away. Tips that can help consumers avoid the scams include:

  • Beware of fake promises - promises that sound too good to be true. If any company assures you of getting out of debt soon and easily without knowing your particular conditions, consider it as a red flag.
  • Avoid paying any up-front fees. No reputed company would ask you for any up-front fees, however, may charge small monthly fees for offering debt relief service. Nevertheless, the initial consultation should always be free of cost.
  • Beware of any company that pushes you into a particular program or plan.
  • Check if the company has proper registration and affiliation. A reputable company will always have affiliation with entities like Better Business Bureau (BBB) and associations like International Association of Professional Debt Arbitrators (IAPDA) and National Association for Debt Education & Assistance (NADEA).
  • Check if the company introduces you with their debt consolidation program and also provides you detail as to how will they go about with your case.
  • See if the representative who talks to you is knowledgeable, patient, and keep to solve your problems.
  • See if they put your money in an FDIC insured trust account during the tenure of the program.
  • Get to know about the company by reading online reviews, from its past clients and if any friend or relative of your have first hand experience.
  • Carefully go through any written agreement you sign with the debt consolidation agency. Simply back off if you feel any discrepancy with what was said before verbally.
  • After you sign up, check if the creditors are receiving payments. In some debt consolidation programs, the consumer is required to send periodical payments so that a lump-sum can be accumulated, which in turn is distributed among the creditors.

Each year thousands of complaints pertaining debt consolidation scams are submitted with both the FTC and BBB. If there is anything as such you want to file a report against, click here.

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