During this wrenching, endless period of economic doldrums, debt relief and debt reduction scams have spread like wildfire. Credit card debt is a major problem as the horrible economy has put millions in financial distress. The anxiety and pain of overwhelming debt makes some individuals an easy mark for debt consolidation predators. But with financial discipline and effort people can avoid even the so-called legitimate debt reduction services.
The debt reduction mirage
Most companies offering debt reduction services pitch debt reduction services where you pay back existing debts with an additional loan. Offering to negotiate with your creditors for an amount less than you owe is an additional tactic. In many cases just taking your upfront fee is all that matters, not really reducing your debt. And one thing they won’t tell you is that paying less than you owe shows up on your credit report as failure to pay down your debt in full, which wreaks havoc on your credit score.
Debt reduction deception
It should be no secret that many companies promising to help consumers overwhelmed by credit card and other debts are financial predators that charge high fees but deliver little or nothing in return. The Los Angeles Times reports the Government Accountability Office sent investigators to debt management companies posing as debt-ridden consumers. Sometimes promising debt reduction of up to 50 cents on the dollar, the companies made wild exaggerations of their success rates.
Phantom debt reduction
Big upfront fees—as much as several thousand dollars—collected by debt relief companies often leave their customers worse off than they were before. MSNBC reports on the ordeal of a woman in North Carolina who fell for the pitch from a debt relief business that she would save enough with lower interest rates to pay down credit cards, a mortgage and a car loan five times faster. After paying $ 499 up front, she was assured that rate of interest savings would make up for the fee within the first 30 days on her way to a total savings of $ 2,500. The Federal Trade Commission sued the firm after they refused to refund the $ 499 fee after failing to deliver on those promises.
Government debt relief scams
Claiming “government approval is a common angle pursued by debt relief scam artists today. The Los Angeles Times article reports that advertisements by debt management companies, as well as statements by company representatives to GAO investigators, provided evidence the firms lead clients to believe their services are part of a government program comparable to the recent bailout of troubled banks. One company that shows up at the top of search engine rankings for debt relief calls itself the Federal Debt Relief Program. One more less-than-honest scheme is the “U.S. National Debt Relief Plan.
Do-it-yourself debt relief
There is no government-backed debt relief program among the hundreds of companies online falsely claiming they are. Debt relief has become a huge industry intended to kick people when they’re down. The best route to debt relief is still getting on a spending budget, paying your bills on time and saving money to spend on debt reduction. Negotiating better terms or lower payments and refinancing car or home loans are actions you are able to take yourself.
Debt management advice is free
The National Foundation for Credit Counseling is a good place to start if you need help with debt troubles. Everyone who needs free and confidential advice about debt relief can get it from this non-profit community group. You can consult with them over the phone or in person. To discover a counselor as part of your area go to nfcc.org.
Citations
Los Angeles Times
latimes.com
MSNBC
msnbc.msn.com
NFCC
nfcc.org
