Debt consolidation scams: How to spot and avoid them

Dealing with debt daily already adds enough strain to your financial life and mental health. So, the last thing you need is for a scammer to take advantage of you. Sure, it’s tempting to believe the solution to your debt problems could be as easy as trusting the first company that comes along and promises great results. But, the truth is that working with the wrong company is usually worse than doing nothing at all. Here is practical advice to dodge debt consolidation scams.

This is not to say that you can’t pursue consolidation. Instead, the point here is to choose a legitimate partner, which involves first knowing what a deceptive scheme looks like.

Know the signs of a debt consolidation scam

Thankfully, scammers usually wave some red flags that can alert borrowers to their illegitimacy before handing over any personal information. Knowing what to look for in this regard can help you stay vigilant and protect yourself against getting ripped off.

According to the Federal Trade Commission, borrowers should avoid any debt relief service that:

• Claims to be part of a “new government program” to get rid of credit card debt
• Charges fees upfront before it has provided any services to you
• Makes guarantees about the results it can provide — like saving you X percent or making all your debts disappear
• Requires you to provide your personal/financial information before it will provide you with free information about its services
• Automatically approves you for its products/services without going over your financial situation
• Denies or glosses over the possible risks of debt relief

Here’s a good general rule regarding debt consolidation scams. Here goes: Be skeptical of any debt relief solution that seems to appear when you need it most.

That’s especially true if debt-free sounds like a “sure thing.” The reality is it’s not usually quick or easy either, whether it’s a government relief program or another initiative.

The truth is that debt consolidation can help people get out of debt for less interest and with less hassle. Be aware, though, that it requires a commitment. It’s usually for at least a few years.

Legitimate lenders and debt relief services want to provide their clients with all the information they need to make an informed decision and succeed in their endeavors. That is, as opposed to trying to make a quick buck off the backs of vulnerable people who want to provide for their families.

Only work with reputable lenders and organizations

The good news is that you can dig online to find out what others say about any given bank or online lender. The same holds true for researching a settlement company, credit counseling agency, or another organization.

The right one depends on the avenue for consolidation you want to explore. This research can help you avoid debt consolidation scams.

Borrowers dealing with a heavy debt load may be considering a combination of debt settlement — with the goal of negotiating down what they owe — combined with a credit card debt consolidation loan to speed up the process. In this case, choosing a relief organization that is an American Fair Credit Council-accredited member will help ensure that it operates according to industry best practices as enforced by an impartial third-party auditor.

Borrowers interested in seeking credit counseling and possibly consolidating via a debt management program can use a database like the National Foundation for Credit Counseling to find a third-party accredited organization that upholds certain standards.

If you’re considering taking out a consolidation loan or opening a balance-transfer credit card, look at previous customers’ ratings of the lending institution. Shop around for the best rate.

Dodging debt consolidation scams is a matter of knowing the signs of a scammer. It also involves knowing the hallmarks of a reputable organization.