Debt consolidation scams can be avoided. Doing so requires two steps...
First, you must ask "the right" questions of a potential debt consolidation company you are considering hiring before you sign on the dotted line.
Second, you must keep yourself informed of exactly what is happening with your debt consolidation plan as you move forward.
OK, let's first look at what type of questions you should be asking before you start a debt consolidation/management plan.
1. Ask the company to estimate how long it will take to complete the debt consolidation plan. (keep in mind that many plans require 3 to 5 years to complete)
2. Ask what your new monthly payment amount will be and how that amount is determined. There is no sense in signing up for a program of payments that you cannot afford.
3. Ask for an estimate of how much you will save over the life of the debt plan. Many reputable companies will offer free, no obligation estimates of exactly what you can save by enrolling in a debt consolidation program.
4. Ask how they will ensure that all of your creditors will be paid on time, and paid the correct amounts.
5. Ask what other debt help options the company can offer, whether it be straight credit counseling or perhaps a debt settlement plan. I always recommend speaking with companies that can offer debt counseling, debt consolidation and debt settlement. That way they are less likely to "talk you into" one option over another simply because that is the only one they offer.
6. Ask what kind of reports and status updates you will be receiving along the way. Remember, you need detailed, accurate and timely statements about your account to make sure they are doing what they said they would do when you signed on.
7. Ask if enrolling in their debt management program will affect your credit. Don't fall for companies telling you that they can remove negative credit items from your report.
1. The most important thing you should do is confirm with each of your creditors that they will accept the terms of the debt consolidation plan put forth. Do this before you send any payments to the debt consolidator you are working with.
2. Make sure that any concessions that were made by your creditors, ie. waiving of late fees and/or penalties, or reductions in interest rates are laid out clearly in your reports. You want to see everything in writing!
3. Make your payments on time to the debt counselor. As well, follow up with your creditors randomly to make sure they are being paid on time. Review the monthly statements from your creditors closely and diligently.
If you take the two steps I have outlined above you will be on our way to avoiding debt consolidation scams. Remember, there are some very good, reputable debt consolidation/counseling companies out there who truly do want to help you.
One final suggestion I have is to shop around. In other words, don't necessarily settle on the first company you speak with.