With the rising need for credit and debt help, deceitful debt management companies have popped up to profit from the misfortune of the people. Consumers have to be extremely careful which debt consolidation firm they choose. Even self claimed nonprofit organizations have gotten caught in huge consolidation scams.
Falling for one of these scams can cost you a lot of money and ruin your credit. Luckily the Federal Trade Commission (FTC) is providing some protection for consumers.
In May 2006, Lighthouse Credit Foundation Inc. were ordered to refund more than $2.4 million back to their clients in a credit consolidation scam. The company "solicited consumers... by leaving prerecorded messages on home answering machines stating that the consumer had been approved through 'a certified non-profit nationwide program' to consolidate credit card debt before the next billing cycle at interest rates 'as low as 1.5%.' People who responded to the messages were told that the program included counseling on how to manage finances, and that a monthly administrative fee was tax-deductible because Lighthouse was a nonprofit organization. Consumers agreed to pay large fees to enroll in debt management plans based on these representations"
Few samples:
One pause of backflow / World a clink away / Savour amounts either for example
None of these promises by Lighthouse Credit were kept. The entire press release can be read on the FTC's website.
There are so many examples of credit card and debt consolidation scams it's important to be extremely careful about choosing a company.
Here are some things to look for when hiring a debt consolidation company.
#1 Always check the Better Business Bureau first. It's the easiest and quickest way to see if any complaints were filed about the company. If other people weren't happy, you probably should avoid the company. (bbb.org)
#2 Make sure that you receive a guarantee of provided services in writing.
#3 Do not pay large fees upfront with a money order or cashiers check. If a company asks you to wire the money to them, find another company.
#4 Do not include credit accounts that already have low rates. Student loans and other low rate credit cards do not need to be consolidated. There's no benefit to you and no reason for the company to have control over these account.
#5 Do not include debt to the IRS. Debt Consolidation Companies cannot handle IRS accounts, they must be handled separately.
#6 If a company quotes you unusually low payments, be cautious. If it sounds too good to be true, it just might be. Make sure to get a couple of quotes from different companies.
#7 Do not accept "debt negotiation" as part of your service. This is a completely different service than debt consolidation. Debt negotiation is when the company negotiates a lower payoff to close your account.
#8 Last but not least, read your contract very closely. If anything looks funny, ask about it, or ditch the company entirely
The FTC states that you "may want to try working with the creditor itself or may seek help from non-profit financial counseling programs. Some universities, credit unions, local county extension agents and banks operate low-cost or free programs."
They recommend that to contact the National Foundation for Consumer Credit, 301-589-5600. "This non-profit organization, which has more than 200 Consumer Credit Counseling Services in 44 states, helps consumers budget their income and work out repayment plans with creditors."
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