Debt Settlement Scams

Wise consumers will watch out for debt settlement scams when attempting to find solutions to financial pressures. While there are many reputable organizations that offer a variety of financial services from counseling to loan consolidation, there are also agencies that will use predatory practices to take advantage of families facing economic challenges. Some of these unscrupulous agencies will even advertise themselves as being non profit. This designation does not mean that the organization is not concerned about making money. Many of these so called non profit businesses will end up making a great deal of money at the client's expense. The terms "loan consolidation" and "debt settlement" indicate two very different approaches to serious fiscal issues. Loan consolidation generally involves paying off a collection of older loans with a new loan and rolling all indebtedness into one convenient payment. Settling debts can take a different direction. Organizations that offer this service will negotiate with creditors to come up with a plan that makes it possible for a debtor to pay off loans through one payment, but a new loan is not taken out. This practice can be done in a way that is completely legitimate. But debt settlement scams will often involve excessive interest rates, terms, fees, and penalties that are not in the borrower's best interest.

The promises that are made by debt settlement scams can sound reasonable on the surface. A financial counseling agency will promise to contact a client's creditors and attempt to negotiate a better arrangement on the repayment of debts. They claim that the actions that they will take will make creditors stop harassing the debtor, and cause collection agencies to back off. By reducing monthly bills on unsecured debts into one payment that is lower than the sum total of the previous payments, these counselors will ease the financial burden on a struggling family. Many agencies are able to follow through on these types of promises. Usually, debt settlement scams will engage in practices that do not benefit the client. Many counselors who are part of debt settlement scams will advise clients to stop paying their credit card bills as well as payments on other unsecured debts. The claim is that this lack of payment will indicate a hardship circumstance to the creditor. The creditor in turn, will then be more willing to negotiate more lenient terms with the borrower. In reality, this is not a wise approach to handling mounting debts. All the while, the client is paying fees, sometimes steep fees, to the agency. In terms of earning these fees, the agency is actually accomplishing very little. In fact, they may not attempt to contact the client's creditors at all. In the meantime, the client's creditors are knocking at the door demanding payment and assessing high fees and penalties against the debtor's accounts. And the borrower's credit score will take a beating due to all of the defaulted debts.

To avoid falling prey to debt settlement scams, a borrower should do careful research and look for specific warning signs before committing to work with any organization. In some cases, a credit reorganization service will collect money from a client and put it in a trust after extracting a large fee. While the money is accumulating, these companies are claiming to be negotiating with creditors. Even if negotiations are moving forward, interest payments, late fees, and other penalties are mounting up. There is no guarantee that any creditor will be willing to work with a reorganization agency. And rather than dispersing the debtor's monthly payments among the various creditors, many debt settlement scams will hang on to the money and will not pay the creditor until enough money to retire the debt has been paid. A potential client should ask very pointed questions in these areas before enrolling with any settlement organization. How will the funds be dispersed? What happens to a client's accounts while negotiations are taking place? If a creditor refuses to work out any kind of agreement, what happens to that neglected account? What will happen to a client's credit score while all of these bills are being neglected? If the answers to these questions are not satisfactory, a potential client should look elsewhere for help with pressing financial issues.

When choosing an agency, a client would be wise to only work with organizations that will make some kind of monthly payment to the creditor rather than putting the money in a trust and leaving it there. Predatory organizations will charge very high initial administrative fees in addition to monthly fees. All of these funds are collected for services that may not actually address any of the debtor's problems. The only way to get out of debt is to make steady payments to a creditor. Even though dealing with out of control debts can be frustrating, a borrower should remember that with hard work and consistent attention to monthly payments, these pressures will eventually ease up. The eternal quality of God is described in the Bible. "But thou, O Lord, shall endure for ever; and thy remembrance unto all generations." (Psalm 102:12)

If a consumer feels that they have been the victim of debt settlement scams, there are agencies that can help. Filing a complaint with the Better Business Bureau is an option. Another agency to consult might be the National Consumer Debt Council. Whatever approach a borrower might take in handling this problem, curtailing all association with the unscrupulous organization is always a good idea. Reputable professionals in the field can help a consumer find real answers to credit problems.