How to identify the 'Debt Consolidation' Scams

Posted by Nick Niesen on October 29th, 2010

"I just want some money to pay for my debts and get rid of the harassing phone calls from my creditors". You have frighteningly high balances in your credit cards, you owe money to a few finance companies, and the monthly payment of these debts has exceeded your financial capability - You have unbearable debts and you are in highly pressure looking for a solution to resolve your debt problems.

There are many debt consolidation companies which can provide you help to consolidate your debt with their proposed solution. But unfortunately, not all debt consolidation companies are legitimate. There are many scams that are waiting to catch an unwary customer and make their. People with high pressure and anxiousness in looking for a debt solution normally may overlook the terms and conditions of the service from these scams and as the result, you may trap into bigger debts because the service from scams normally incur highly upfront fees with many other hidden cost (of course they will promise you their 110% guaranteed that your debt problem will be solved)

Beware of them. Calm yourself down and take your time to think carefully and don't sign till you are fully satisfied with the credentials of the consolidator. Here are some sign of "Debt Consolidation" scams which you should be aware of:

Quote Unusually Low Monthly Payments

A debt consolidation company works with your creditors to negotiate a lower interest rate and this interest will normally within creditor's predetermined rates that they allow to lower to, so every debt consolidation program should give you about the same rates.

Companies who quote unusually low monthly payments are probably giving you a low figure, which they will raise once you are in the program. Instead of comparing monthly payments, request information on their fees and remember to check for any potential hidden cost which may incur later.

Charge High Upfront Fees

The most common scam is to charge high upfront fees, up to thousands of dollars, for services. Sometimes companies will promise to refund fees on completion of the program, but few clients actually complete the program.

The best way to check the reputability of these debt consolidation companies is to check them with the Better Business Bureau at bbb.org. From they you will know how many complaints have been filed against these companies and for what reasons.

Legitimate non-profit companies charge a flat monthly fee for each account handled. They are usually subsidized by financing companies. For profit companies will charge a competitive fee along with a flat monthly charge.

Request For Your Account Numbers Before Hand

A debt consolidation company should be able to provide you with their quote by knowing your creditor names, balances and their interest rates. Be highly suspicious of any company that requests your account numbers, social security number, or other personal information before providing a quote. By providing this information, you open yourself up to identify theft.

In Summary

A reputable consolidator will work out a realistic plan for you and will address all your concerns and worries. He will inform you about the process it involves and the benefits of the plan. Nevertheless, you should fully convince yourself about the debt consolidator before you sign up for debt consolidation. Put highly alert on the potential scams will minimized your risk to drop into the trap of those scams.