a man who fell for a debt consolidation scam

5 Tips for Avoiding Debt Consolidation Scams

Debt consolidation is a legitimate option for clients who wish to use it to overcome financial burdens. While there are a lot of well-known, respected companies that provide this service, you should be aware that there are many companies that are ready and willing to take your money and leave you in an even worse financial position. Below are tips for avoiding debt consolidation scams.

  • Research the company.

    Does it have a legitimate address? Many scammers operate from P.O. boxes or other fictitious locations. Does the company's advertising include a telephone number? If so, call and see if a real person answers. Don’t forget to check with the Better Business Bureau.

  • Avoid paying up front.

    You could make a substantial down payment and never hear from the company again. It is illegal in the U.S. for debt consolidation companies to ask for advance payments. If any company offers to repair your credit, don’t fall for it.

  • Ask around.

    Ask your creditors if they will work with a debt consolidation plan from the company you have chosen. Your creditors may be aware of illegal practices and offer an alternative. Many times your creditors, if you ask them, will help you work out a financial plan that helps you repay your debts.

  • Be careful what you sign.

    Read the fine print and make sure you understand it. Look for excessive interest rates and hidden fees, and beware any blank forms.

  • Pay attention.

    Scammers may take your money each month using an automatic payment plan set up with your bank to pay your debt consolidation loan. If you continue to receive delinquency notices from your creditors, they didn’t receive their payments. You could end up having to close your bank account in order to cease these fraudulent payments.

If your creditors won’t cooperate with you, look for a free or nonprofit credit counseling service. Make sure they are accredited by the National Foundation for Credit Counseling (NFCC). These offices are staffed with legitimate professionals who can find legal ways to help you.

Last Updated: October 08, 2014