How to Avoid Debt Consolidation Scams

In today's difficult economy, many are looking for help with debt consolidation whether it is credit card debt, general bill consolidation, or a need for credit repair. Businesses are competing to prove that their debt solution is best. But how can you tell which debt consolidation service is worthwhile and which is a scam?

Difficulty: Moderately Challenging

Instructions

1. Ask around
   Before you choose a debt consolidation service, check to make sure the company is legitimate. Call your State Attorney General’s Office (AGO) and the Federal Trade Commission. http://www.ftc.gov/ Check with the Better Business Bureau to see how many complaints and what kinds of issues have been lodged against the company. http://welcome.bbb.org/ Another agency is the American Association of Debt Management, but keep in mind that this agency was formed by consumer credit counseling service companies and may not be as reliable as the AGO.

2. Keep Info Private
   To provide a quote, a debt consolidation program only needs to know your creditors’ names, balances, and interest rates. They do NOT need to know your account numbers, social security number, or other personal information.

3. Compare Fees, Not Monthly Payments
   You should receive the same rates from every debt consolidation program because they all get the same deals from creditors. If one company is offering you a lower monthly payment, it is probably because they giving you a higher interest rate. This will cause you to pay more in the long run.

4. Beware of extra fees
   Do not pay for a quote or analysis. Many debt consolidation services charge high up front fees or hidden fees that will pop up months after you begin. Some fees are built into the monthly payment. They take a payment from you and send it on to the creditors. Some agencies charge you as much as 10% more than what they send the creditors. Then they also get a 10% to 15% rebate back from the credtors.

5. Take a Moment
   Employees at many consumer credit counseling services are taught a script to play on your emotions and fears. When you go to talk to a counselor, take a friend who will promise to keep you from making an immediate decision to sign up. Tell your friend to make you leave and come back after you have talked it over and looked at all the details.

Tips & Warnings

• Try to consolidate credit yourself. http://moneycentral.msn.com/content/Savinganddebt/Managedebt/P36230.asp
• Beware of debt consolidation services who take your payment and fail to send it on to your creditors on time. This will make your credit problems even worse!
• Don't try to pay bills by transferring balances to lower rate cards. This shows up on credit reports.
• Don't believe debt consolidation services who promise to repay upfront fees once you finish the program.

Resources

• Useful Links
• National Foundation for Credit Counseling

[toph]

on 2/19/2009 A very useful article. It is a shame how people will take advantage of each other. Thanks. five/five.

[NuttyMomma]

on 2/19/2009 Thank you for giving out such important information. Very well written. 5* and I am saving and passing this on to others.

[kaytay]

on 2/19/2009 Thanks for the useful tips 5* and a recommend

[ManyMusings]

on 2/11/2009 This can be so scary for people in this situation! Thanks for the information. 5*

[momoftwingirls]

on 12/2/2008 You know what, I think it is so sad how our nation's citzen's have been bamboozled into getting credit cards. Did you know this credit card stuff begins once you are in college. How nice, picking the perfect prey to go into bankruptcy before you can even graduate and pay off your student loans.

It is a pity the way our county is going...