Due to the economic downturn, more and more consumers are falling behind on their bills and looking for ways to get out of debt. One of the most common ways to get out of debt is debt consolidation. Unfortunately, thousands of desperate consumers fall prey to debt consolidation scams each year.
Spotting a Debt Consolidation Scam
The best way to avoid becoming the victim of a debt consolidation scam is to trust your instincts. If it sounds too good to be true, it probably is. Following are a few red flags that signal you may be dealing with a scammer:
- Unusually Low Monthly Payments – If the monthly payment seems to be unusually low, the debt consolidation company is probably scamming you and will raise the payments once you are in the program.
- High Upfront Fees – Many debt consolidation scammers require customers to pay high upfront fees. They may even claim that the fees will be refunded upon completion of the plan. Reputable companies rarely charge an upfront fee, but rather charge a small monthly flat fee for each account handled.
- Request Account Numbers – If a debt consolidation company requests account numbers before you have signed up for the program, beware. A reputable company will quote you a fee based on the amount of each of your debts along with the interest rate on each of your debts.
- Guarantees – If a company guarantees results without first evaluating your financial situation, it's probably a scam.
- Pressure – If a company is pressuring you into signing up or refuses to allow you to review the paperwork or have it reviewed by an attorney, it's probably a scam.
- Excessive Fees – Remember that most debt consolidation companies are in it to make a profit. So, the fact that you may be required to pay a fee does not necessarily mean that you are being scammed. However, if you are going to be charged a variety of fees, beware.
To avoid being scammed, check with the Better Business Bureau or the office of the Attorney General in your state to determine whether you are dealing with a reputable debt consolidation company. Also, never sign any documents without first reading them and having them reviewed by an attorney.
WhatTo Doif You've Already Been Scammed
If you believe you've been the victim of a debt consolidation scam, you should report it to the Federal Trade Commission and to the Attorney General in your state. You should also speak with a qualified consumer protection or debt settlement attorney to determine whether you have any civil claims against the company.