Even Legit Debt-Consolidation Companies Could Be Scamming You
December 30, 2011
Chris here, from the AllClear ID Investigations Team. Debt-consolidation scams are specifically geared to take advantage of people who are desperately looking for a way to get out of debt. The companies target those with poor credit and offer to help out – for the right price. The problem is, some companies take advantage of your situation, all the while putting you farther and farther in debt. They can take advantage of you at a vulnerable time, and leave you worse off than when you started. By the time your debts are finally paid off, you’ve actually paid almost twice what you actually owe. Read this Better Business Bureau story about how a company named “Clear Your Debt” actually cleared out one woman’s bank account.
You could assume the company is doing its job, and your debts are being taken care of properly because you have stopped getting calls from collections agencies. However, all the debt consolidation company has to do is call the collection agency to say it is now representing you. From that point on, the collection agency can no longer legally contact you directly. All correspondence from them must now go through the company that is representing you. But that company can go months at a time without making any actual payments towards your debts – and without you ever finding out about it.
There are several different ways these types of scams can work. Some are as simple as someone calling or emailing you, promising to solve all of your debt problems. They ask you to pay money up front; down the road, you’ll discover it’s not even a legitimate company.
Other debt consolidators are actually legitimate companies that aren’t technically committing fraud, they simply just don’t mention all the hidden fees they charge. They force you to sign a contract, then charge tons of hidden fees, causing you to go even further in debt then you already are. This in turn causes higher interest rates, and once again, causes you to continue to go further in debt. It continually sucks you into this circle of debt, but because you’ve signed a contract, there is no way to break the cycle.
There have also been instances where consumers have made three or four months’ worth of payments to a debt company without a penny of that amount actually being put toward paying off their debt. The initial first few months of payments are entirely eaten up by signup fees, and various other hidden charges.
There are a few different things to look for when considering signing up with a company promising to help you reduce your debt load:
- Beware of companies that pressure you into a plan or make any guarantees without looking into your specific needs.
- Research the company and the services it offers, and check it out with the Better Business Bureau beforehand.
- Read the fine print: Review the agreement closely, ensuring that it outlines the finance company’s plans and its time frame for getting you out of debt.
- Before you start paying the finance company, ensure that your creditors have accepted the company’s proposed plan. Until they do, be sure to continue paying your bills as usual.
- After you begin the program, keep a close watch on your statements and call the creditors to ensure they receive payments.
Read this Smart Money article about undisclosed fees and other information that debt consolidation companies may keep hidden. Also, the FTC suggests hiring a credit counselor instead, and offers advice on how to find the right one for you.