The long, deep recession and its aftermath have created an environment in which debt reduction scams and debt relief scams flourish. With millions in financial trouble, credit card debt is a bigger problem than ever. People drowning in debt are easy targets for unscrupulous debt reduction services promising relief from all that stress and anguish. But with financial discipline and effort people can keep away from even the so-called legitimate debt reduction services.
Debt reduction pitfalls
To provide debt reduction services, most companies pitching these programs offer loan consolidation plans in which you take out another loan to settle existing debt. Offering to negotiate with your creditors for an amount less than you owe is one more tactic. All they care about is signing you up, not whether or not their programs will actually work. When it comes to negotiating for a settlement, bear in mind that it will show up on your credit report as failure to pay the debt in full, which will subtract from your credit score.
Debt management misrepresentation
Financial predators posing as companies promising to help consumers overwhelmed by debt that take the money and run are exposed and documented. The Los Angeles Times reports that investigators for the Government Accountability Office posed as distressed consumers seeking help from debt management companies. The companies gave them wildly exaggerated descriptions of the firms’ success rates and sometimes promised savings of as much as 50 cents on the dollar.
Debt reduction false promises
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 tells the story of a woman in North Carolina who was promised by a debt management business that they would lower her interest rates enough to pay down credit card, mortgage and car loan debt 3 to five times faster. After paying $ 499 up front, she was assured that interest rate savings would make up for the fee in the first 30 days on her way to a total savings of $ 2,500. No interest rates were reduced, the business would not refund the $ 499 fee as they promised and the Federal Trade Commission sued the firm.
Common debt relief scams
A common trick played by debt relief scam artists today is “government approval”. Statements made by debt management business representatives as reported in the Los Angeles Times article, as well as their advertising, has shown the companies attempt to portray themselves as partners in a government program resembling the recent bank bailout. One of these companies with a prominent Internet presence is called The “Federal Debt Relief Program”. ”U.S. National Debt Relief Plan” is another.
Self reliance is the best debt relief
There are hundreds of debt reduction and debt relief companies infesting the Internet, but there is no government-backed credit card debt relief program. Desperate people in troubled times are fodder for a huge industry with a predatory business model. Getting on a spending budget that allows you to pay your bills on time and pay down your debt is still the best route to debt relief. People don’t need a debt management business to negotiate with creditors or refinance loans when they can do it themselves.
Debt relief advice you can trust
If you aren’t sure how to solve your debt troubles, contact the National Foundation for Credit Counseling. The NFCC is a nonprofit community organization that provides free and confidential debt management advice to everyone that needs it. The NFCC offers consulting in person or by phone. The website nfcc.org can connect you with a counselor as part of your area.
Additional information at these websites
Los Angeles Times
latimes.com
MSNBC
msnbc.msn.com
NFCC
nfcc.org
