Debt reduction scams and debt relief scams have been spreading like mildew for some time now during this painful and prolonged economic downturn. The terrible economy has put millions of individuals in financial trouble and one of the biggest troubles is credit card debt. Predatory debt relief companies promising peace of mind are seeking out individuals drowning in debt. Even so-called legitimate debt reduction services charge hefty fees for something people can do themselves with financial discipline and effort.
The debt reduction mirage
Paying off existing debts with more debt is a common tactic of companies hawking debt reduction services. Offering to negotiate with your creditors for an amount less than you owe is an additional tactic. In many cases just taking your upfront fee is all that matters, not actually reducing your debt. An significant thing to realize is that paying less than you owe is listed on your credit report as failure to pay in full, which damages your credit score.
Debt relief predators
It should be no secret that numerous companies promising to help consumers overwhelmed by credit card and other debts are financial predators that charge high fees but deliver little or nothing in return. 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.
Duped by debt reduction
Often consumers end up deeper in debt than they were before paying big upfront fees to debt management companies—which can be various thousand dollars. MSNBC reports on the ordeal of a woman in North Carolina who fell for the pitch from a debt relief company that she would save enough with lower interest rates to pay back credit cards, a mortgage and a car loan five times faster. After paying $ 499 up front, she was assured that interest rate savings would make up for the fee within the first 30 days on her way to a total savings of $ 2,500. The Federal Trade Commission sued the firm after they refused to refund the $ 499 fee after failing to deliver on those promises.
A debt relief scam trend
Claiming “government approval is a common angle pursued by debt relief scam artists today. Statements made by debt management company representatives as reported in the Los Angeles Times article, also as their advertising, has shown the companies try to portray themselves as partners in a government program resembling the recent bank bailout. One company that shows up at the top of search engine rankings for debt relief calls itself the Federal Debt Relief Program. Another is called “U.S. National Debt Relief Plan”.
Debt relief through self-discipline
Of all the hundreds of debt reduction and debt relief opportunists spreading across the Internet, not one is part of a government-backed program. Debt relief in these troubled times has become a huge industry co-opted by shysters taking advantage of desperate people. Getting on a 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 company to negotiate with creditors or refinance loans when they can do it themselves.
Debt management advice is free
The National Foundation for Credit Counseling is a good place to start if you need help with debt difficulties. The NFCC is a nonprofit community organization that provides free and confidential debt management advice to anybody that needs it. Advice is available either over the phone or in person from the NFCC. Have a look at nfcc.org to discover a counselor inside your area.
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Los Angeles Times
latimes.com
MSNBC
msnbc.msn.com
NFCC
nfcc.org
