Debt Relief Council Scam
Debt Consolidation Scams – How To Protect Yourself
Donna, a single mother, owed several companies including her bank a total of $12,890 in credit card debt. Though she was able to pay the minimum balances, it was a big strain on her budget. She decided to do something about it.
Determined to become debt free “whatever it takes”, Donna contacted a debt consolidation company whose commercial she had seen on TV. After an initial fee of $95, the “debt counselor” advised Donna to stop making payments directly to her creditors.
It was arranged for her to send one payment to the debt consolidation company, who in turn would disburse the funds to her creditors. The new arrangement sounded great, and her interest rates were much lower. She would be debt-free in three years. Or so she thought.
A few weeks went by without incident. Then the calls started coming at all hours of the day. Apparently she was not paying her debts. Something was not right.
When she called the consolidation company she got a rude awakening. The company, among dozens of others, had been shut down for fraudulent business practices. Her payments were never disbursed, her accounts were closed, and now she had delinquency notations on her credit report. She had incurred late fees plus over-limit fees for some of her credit cards.
Debt Relief Scams are becoming increasingly common as more and more people seek ways to get out of debt. Self-education is your best protection, plus of course a dollop of commonsense. Here are a few things to look out for:
1. Grandiose promises. If they promise to help wipe out your debts, or to cut them in half (or other big fraction), that’s a red flag for you. Beware of companies that promise to wipe out your debt today or erase your debts and save you thousands of dollars. No debt settlement or consolidation service can get negative information off your credit report(s). If they promise this, be suspicious.
2. Hefty up-front and other fees. Up-front fees, if any, should not exceed $75. In fact, most reputable services do not charge up-front fees. Likewise, monthly fees should also not exceed $50 per month.
3. Non-profit status. Avoid for-profit companies. This is a little tricky, as some non-profits are shams. Check if the company is accredited by the Council On Accreditation (COA) at www.coanet.org. There are reputable non-profits that are not accredited, but there are none that are.
4. If the agency’s employees work on commission, run. How do you find out? Ask. It’s a straight yes or no answer question and vagueness should raise your suspicion. Of course, be aware that they could also lie.
5. If they promise free services, run. There is no such thing as free lunch even in debt relief.
6. If you feel like you’re being pressured (or scared) into signing up immediately, hang up the phone.
7. A good counselor is bound to ask you lots of questions and delve deeply into your financial life. Expect this, and embrace this. It is for your own good. If he/she appears keen to “get it over with” something is not right.
8. The counselor must explain to you in clear terms how your funds will be used and what to expect. Vagueness is something to watch out for here.
9. Check the Better Business Bureau (BBB) at http://www.bbb.org for complaints against the company. No company can please everyone, so some complaints will be probably be there even for reputable companies (whiners will always be there). What to look for is the number and consistency of complaints.
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