Avoiding Debt Consolidation Scams and Rip-offs
You’ve seen the ads on the Internet — – they promise to consolidate your debt to a manageable monthly payment, preying on your desperation to get your finances under control. Some of these companies are legitimate, some are simply outrageously expensive for perhaps no positive outcome, and some are outright scams.
We recommend you consolidate your debt on your own, but if for whatever reason you are unable to do so, we want to help you avoid getting ripped off.
Some of the con jobs are as simple as asking for payment up front, and then disappearing on you. Not only is the failure to deliver illegal, but it’s even illegal for them to call you and ask for an advance fee up front they do business in the US or Canada.
The other major scam is a false claim of the company having a nonprofit status. These companies carry deceptive names which are either not actually nonprofit, or simply funnel profits into a for-profit company. In fact, the term nonprofit has no bearing on a company’s ability to consolidate your debt. So, steer clear of any company claiming nonprofit status.
Here is some advice to help you steer clear of scammers and rip-off artists:
- Understand the details of their methodology, and get all the agreements in writing.
- Don’t let a debt consolidation firm pay any money to collection agencies. For one, it doesn’t improve your credit. For another, if your debt is over 10 years old you cannot be sued in any state, unless you make even just one payment, that resets the clock.
- Lenders are more apt to negotiate down debt if you’re behind in your payments. Make sure the debt consolidation company does not purposefully miss payments in order to make their job easier, and ruin your credit at the same time.
- As with doing business with any company, ask for references. And make sure you call them.
- Contact the Federal Trade Commission to check on the company. They keep a log of complaints.
- If the debt consolidation company manages to convince a lender to forgive all or part of your debt, get it in writing that the forgiven amount will not be sold to a collection agency, which would open up a whole new problem.
- Know that the firm is unlikely to actually negotiate down your debt. Most will simply charge you high fees for collecting your money each month and making the various payments for you.
- Beware of promises and guarantees by firms who have yet to look at your specific situation.
- If the debt consolidation company says they have worked out a plan with your creditor, call them yourself to make sure they have actually accepted the plan.
- Do not include your home mortgage loan and student loan in your debt consolidation. Lenders in these areas are very willing to work with you on refinancing or otherwise been able to afford your debt.