Fact: If you are looking for debt assistance, unfortunately you are a target.
You are a target for any number of unscrupulous companies and
individuals looking to prey upon your financial misfortune. These
"sharks", if you will, have people like you squarely in their sights as
potential victims of their numerous loan and debt scams.
Because many people who are facing debt problems are in a vulnerable
state and perhaps even feeling desperate for some kind of debt
assistance that will make their money problems disappear... today! And
unfortunately, this "state of vulnerability" and "sense of desperation"
can often lead people like you and I to believe things we that we
shouldn't, and to ultimately make poor decisions.
We get scammed. We lose money. We end up further in debt. And more
desperate than before.
There are two main keys to avoiding a debt assistance scam.
Don't think you are the type of person who can fall for a debt assistance scam? Don't be so sure. The people and companies that offer these scams are very, very convincing. And when you come across an opportunity that promises to "make your debt problems go away", you want to believe so badly that it will work that all logic goes out the window. Your emotions take over your brain and better judgment, and you end up falling for the debt scam. It happens all the time.
your head about you, learn about the debt consolidation loan scams and
debt elimination scams that exist and most importantly, remember that
there is no magic bullet that will get you out of debt. It takes
planning and hard work on your part.
Sidebar: Just to be clear, I am not for a moment suggesting that
there are not many excellent and reputable debt assistance companies
that exist and who can help you tremendously in your debt freedom
journey. There are. But even these reputable debt help companies can
only do so much for you. The responsibility to "get you out of debt"
still lies with you even if you seek debt assistance.
Below you will find a fairly comprehensive list of the loan and debt scams that exist out there today. Some are downright illegal, while others that I have listed are unethical, use bait and switch techniques, or at the very least, use misleading advertising. Nonetheless, it will stand you in good stead to know this list of scams and half-truths so that you can prepare yourself if you come across one in your search for debt assistance.
Probably the most notorious debt scams out there today are the debt elimination scams that have spread like wild fire over the internet. I have purposefully put these scams at the top of the list for two reasons. First, people who fall for these scams often end up losing $3,000 to $5,000. But perhaps even worse, they could end up in federal prison. Talk about adding insult to injury!
Here are the three basic takes on this debt scam.
The no money lent argument is based upon the premise that your credit card company never lent you any money in the first place (they lent you credit), and therefore you don't owe them the money back. In fact some of the scam artists who "sell" this idea take the argument a step further, saying that not only do you not owe the money, the credit card companies owe you the entire amount of credit that they extended you in the first place. I know it sounds complicated, but that is part of the "pitch". The more complicated and "legal" it sounds, the more people fall for it. Read more on this debt assistance fraud here...
Another variation of this scam is based on the premise that the banks and credit card companies are violating the truth in lending act and/or other consumer protection laws. The argument goes that the credit card companies withheld the fact that they risked none of their own assets when they extended credit to the borrower. In other words, if the "no money lent" argument is the "truth", then by withholding this "truth" from the borrower, the credit card company has violated the Truth In Lending Act.
The Code Of Federal Regulations clearly states that the use of credit does form a binding contract. You accept the terms of your credit card statement when you use the credit.
Another extension of the "no money lent" argument is the credit card debt arbitration scam. The premise is to force the creditor into binding arbitration to try and seek a "reward" equal to the outstanding debt, or at least delay the collection of the debt.
How do you get scammed? Well, the debt arbitration services promoting the "no money lent argument", "Truth in Lending Act Violation" and "credit card debt arbitration" scams "generously" offer to sell you all the documentation you need to "legally" eliminate your debts. The cost is usually in the $3,000 to $5,000 range (but can be much more). Once you have the paperwork, you fill it out, and take it to your bank. Voilà, you are out of debt... NOT!
This debt assistance scam has become so prolific that the FBI has stepped in and is looking to charge people (not the scammers but the victims who fall for the scam) who try and get away with this "crime". Yes, the FBI considers it a crime.
From the FBI 2003...
Beware of scams like these --
Debt or mortgage elimination offers. The perpetrators of these schemes offer to take advantage of 'loopholes in the system' that will eliminate your entire mortgage for an up-front fee. Don't believe it. There are no "loopholes."
Federal Bureau of Investigation: Fraud Alert
Although many good, reliable debt consolidation
companies exist that can and do help many people get out of
debt successfully, there are also many companies that are out to take
your money and nothing else. Here's a list of 7 questions and 3 things
you can do to avoid being caught in a debt consolidation scam and ensure that you end up with the best debt consolidation company to meet your needs.
The debt settlement industry itself is a fairly new phenomenon,
arising and growing in conjunction with the increase in consumer debt
and the public's inability to pay it back. And as consumer debt has
grown in the last 10 years we have also seen the proliferation of new
companies entering the debt assisatance and negotiation sector.
Debt settlement can be a lucrative business. And as such, it has
attracted many less than "above-board" companies and individuals
looking to make big money preying on people's misfortune. One of the
most widespread "scams" when it comes to debt settlement agencies
is simply convincing people to sign up for their debt assistance
programs when clearly
their debt and credit situations are not suitable for this type of debt
relief. At the very least, these people end up with extremely damaged
credit, increased debt, and a loss of the fees paid up front to the
settlement company. (Update: As of October 2010, the ability of many of
these companies to collect fees upfront has been eliminated by the FTC.)
Learn more about 6 of the most common debt settlement scams out their today and 2 thing you can do to avoid them.
This debt scam is a beauty. The term "novation" is used in contract law to describe the replacing of one party to an agreement with another party. The debt elimination scam involving "novation" goes something like this. A third party company (the scammers) will offer to replace you in the agreement you have with your credit card company (or other unsecured creditor, but it is usually a credit card company). They do this by sending a payment on your account with an amended contract that among other things, states that the company is taking over your debt. If the check is cashed by the credit card company then, under contract law, the new contract has now been accepted and you are no longer the debtor. Well, at least this is the theory. You can read more about this "apparently" legal credit card debt elimination scam here.
This debt scam preys upon those who believe that they should get a
new loan to "pay-off" their existing debts. Well, let me start by
saying that if you consider using this strategy, you aren't
"paying-off" anything. You are merely "shifting" your debts from one
lender to the next. But that's another story. (Learn more about debt
consolidation loans here.)
This scam is targeted at people who are looking
credit debt loans,
but can't get them from typical sources like a bank, due to
poor credit etc. Knowing that these folks are desperate, the scam
artists advertise large loans for people with bad credit. When people
inquire they are told that they can get the loan if they pay a "loan
origination fee" along with their application. Of course the loan never
materializes and the "application fee" is never returned.
If a company is Christian based then it must be trustworthy,
right? That's what many people believe, and that is certainly what some
debt scams rely on. The problem is, how do you know
debt services are truly Christian based?
As far as I can ascertain, any company can claim that they are "Christian based". And the problem is, many companies do just that to get your business. A well placed picture of a cross or dove on their website along with a bible verse and voilà!, a Christian debt assistance company is born.
Now, I am not saying that you avoid companies that claim to be Christian based. Not at all. But what I am saying is be aware that there are many people and companies that will try and take advantage of your religious beliefs in order to get your business.
I might as well talk about non-profit debt assistance companies while I am on the subject of "misplaced trust". Many folks equate the term "non profit" with something that is trustworthy and free. Don't be fooled!
Again, I am not saying that you should not deal with non-profit debt assistance company, or that they are not trustworthy. What I am saying is, just because they are a non-profit organization does not mean that they are either trustworthy or inexpensive. In fact, many companies seek non-profit status for less than altruistic reasons like skirting telemarketing laws etc.
Other non profit debt help companies pay their executives huge
salaries that are well beyond the industry norm. Or, these non-profits
are just the marketing arm that funnels business to for-profit
companies owned by the executives of the non-profit. Read more about
these type of debt scams and dealing with nonprofit
credit counseling services here.
When faced with debt problems, one of the first solutions that most
people think of is consolidating their debts using a new loan. The idea
being that if they could just get a big fat new loan at a nice low
interest rate, and use it to pay off all of their existing high
interest debt, life would be good again. Well, unfortunately this
is rarely a solution that works out as outline in my debt loans
The reality is that these same folks find out quickly that since
they are already in debt trouble (causing their credit to suffer at the
same time) it is very difficult to qualify for the type of debt
consolidation loan they are looking for. Instead, they are sometimes
sucked into bait and switch loan scams by companies offering large
loans (sometimes $25,000 and higher), to people with poor credit. In
the end what is offered is more along the lines of a debt
consolidation payday loan. The principal amount is small (usually
around $1,500) and the interest rates high (usually higher than what
they are already paying on their credit cards).
If you are a potential candidate for a debt consolidation or "debt management program", you are also a potential candidate for Chapter 13 bankruptcy. And the bankruptcy attorneys know this all too well.
Their advertisements offer free "information
on debt consolidation" hoping to attract potential clients needing debt assistance, who may eventually end up filing bankruptcy. The only
good thing about this is that many people who end up in debt
consolidation programs may have been much better off if they had filed
Chapter 13 in the first place. But this does not make up for the
deceptive advertising nonetheless.
Not-for-profit credit counseling companies that are members of the
National Foundation for Credit Counseling or NFCC are called
Credit Counseling Services. But are they merely wolves in
sheep's clothes? And why would I think this? For two reasons:
Free consumer credit counseling is not only a reality, it is
something that should be offered to you by debt consolidation companies
regardless of your intent to join, or ability to pay for, any paid debt
assistance programs that they offer. With this in mind, beware of debt
consolidation companies that either a) do not offer free credit
counseling, or b) only offer it if you agree to sign on to their debt
management program (which is not free).
They first key to finding debt assistance without being scammed is
to realize one very important thing. The success of any debt
elimination program depends mostly on you.
Sure, debt relief companies can help guide you, and do some negotiating
on your behalf, but most of the "heavy lifting" still falls on your
shoulders. So if a company or individual promises to "make your debt go
away" with little or no effort on your part, there is usually a
"catch". And you end up being the one "caught" in the scam.
The second key to successful debt assistance is to educate yourself.
And that means educating yourself about your own finances as well as
what "legitimate" debt help options are available to you.
If you focus on these two "keys", and watch out for the debt
assistance scams we have discussed above, you will be well on your way
to conquering your debt.