Do You Know the 6 Warning Signs of a Debt Consolidation Scam?

What Is a Debt Consolidation Company?

Debt consolidation is nan process of combining respective debts into 1 debt. Typically, this is done done a debt consolidation loan. For example, if you beryllium a full of $10,000 connected 4 in installments cards you mightiness get a $10,000 indebtedness consolidation indebtedness to salary them each off. Now you person conscionable 1 costs to make each month—and ideally astatine a overmuch little liking rate.

Many regular banks and in installments unions connection these loans, and consumers who want to consolidate their debts tin often negociate nan process connected their own. But location besides are indebtedness consolidation specialists who scope retired to those pinch precocious levels of indebtedness to connection loans aliases opportunity they tin get you one. Some of these companies are legitimate, but galore are scams that could harm your credit, complaint you excessive fees, jeopardize your individual information, aliases simply bargain your money. Legitimate indebtedness consolidation companies will only make interaction aft personification has expressed interest, don't complaint upfront fees, are accredited, and don't make promises aliases guarantees.

Signs of a Legitimate Debt Consolidation Company

The cardinal to avoiding indebtedness consolidation scams is recognizing nan signs that bespeak a indebtedness consolidation institution is not legit. A institution that is connected nan level will beryllium characterized by:

Clear and Transparent Communication

A reputable indebtedness consolidation institution will beryllium clear successful explaining what it tin and can't do to thief you pinch your debt. It will not make unrealistic promises.

For example, a indebtedness consolidation institution will not discuss pinch your creditors to get you a little liking complaint aliases erase your debts. Companies that make specified promises are decently called debt settlement aliases indebtedness alleviation companies (although immoderate whitethorn mention to their services arsenic "debt consolidation"). Some indebtedness colony companies, astir of which are for-profit businesses, are legitimate, while others are outright frauds.

In addition, if a institution reaches retired to you retired of nan blue, by phone, mail, aliases email, it's highly apt it could beryllium a scam. Legitimate indebtedness consolidation and indebtedness colony companies typically do not prosecute successful unsolicited offers aliases acold calling. Instead, they travel up only aft a user has expressed liking successful their services.

Accreditation and Certification

For immoderate indebtedness consolidation company, lender, aliases statement you see moving with, cheque for certifications and licenses that show its compliance pinch manufacture standards.

For example, nan National Foundation for Credit Counseling (NFCC), is simply a nonprofit statement of in installments counseling services whose members must spell done a certification program showing they meet its standards. These counselors often create debt guidance plans, which don't destruct your debts but tin make them easier to salary off.

The Better Business Bureau (BBB) is different root to cheque nan credibility of a indebtedness consolidation institution aliases organization. Businesses tin use to beryllium accredited by nan BBB, and it posts ratings based connected user feedback and different factors.

In nan lawsuit of lenders aliases indebtedness companies, you tin cheque pinch your state's lawyer general's agency aliases banking section to make judge they are registered to do business successful your state, arsenic they are required to be.

No Upfront Fees

If a institution asks for money upfront earlier discussing your business pinch you aliases providing immoderate services, run, don't walk, away. This is simply a awesome reddish emblem pinch indebtedness colony companies, immoderate of which whitethorn misrepresent themselves arsenic providing indebtedness consolidation.

Nonprofit in installments counseling organizations complaint only humble fees and whitethorn supply galore services for free.

Realistic Claims and Guarantees

Getting a indebtedness consolidation indebtedness requires gathering a lender's eligibility requirements. Depending connected your financial situation, you whitethorn not suffice for a indebtedness aliases suffice for capable money to consolidate each of your debts.

Therefore, if a institution makes bold promises aliases guarantees, specified arsenic eliminating each indebtedness aliases improving in installments scores overnight, beryllium wary. Legitimate companies supply realistic expectations of indebtedness consolidation and activity wrong nan confines of nan borrower's financial situation.

And, again, you tin ever use for a indebtedness connected your own, without nan assistance of a indebtedness consolidation company. Some lenders will moreover "pre-qualify" you, giving you a bully thought of your likelihood of obtaining a indebtedness earlier you record a general application.

6 Red Flags of Debt Consolidation Scams

In summation to nan above, these are further reddish flags to watch for successful bid to debar a indebtedness consolidation scam. 

1. High-Pressure Sales Tactics

If a institution uses fierce income strategies to coerce you into moving pinch them, locomotion away. Legitimate indebtedness consolidation companies will ne'er push you to activity pinch them aliases make decisions you aren't fresh to make. Instead, they should let you clip to thoroughly understand nan position and conditions of a indebtedness consolidation loan.

2. Request for Personal Information

Be wary of companies that inquire upfront for delicate individual accusation specified arsenic Social Security numbers aliases slope relationship details. While morganatic companies galore request immoderate of this accusation for a indebtedness consolidation indebtedness application, they won't push for it correct away. It's important to protect your individual accusation and only stock it pinch trusted and verified entities.

3. Lack of Transparency

Legitimate companies supply clear and elaborate accusation astir their services, fees, and terms. If a institution is evasive aliases unwilling to supply understandable answers to your questions, it is very apt a scam.

4. Instructions to Stop Paying Your Creditors

Debt consolidation, dissimilar indebtedness settlement, is intended arsenic a measurement to salary disconnected your creditors, not to discuss all, aliases immoderate information of, your debts away. Some companies whitethorn counsel you to extremity paying your creditors and nonstop your in installments payments to them instead. Supposedly this is simply a measurement to springiness them speech leverage complete nan creditor.

But beware of immoderate company, moreover a seemingly morganatic one, that suggests this. As nan Consumer Financial Protection Bureau warns, "If you extremity making payments, you will apt harm your credit. You whitethorn look postulation efforts, further precocious fees, and punishment liking charges, and you mightiness beryllium sued. These fees and charges will origin your debts to turn larger."

5. Instructions to Stop Talking to Your Creditors 

Similarly, dubious indebtedness consolidation companies whitethorn show clients to extremity communicating pinch their creditors. Doing truthful could lead to hefty fines and postulation actions.

Legitimate indebtedness counselors are much apt to show you to notify your creditors of your financial difficulties because nan creditors whitethorn connection remedies to thief you salary your debt.

6. Promises of Access to a "New" aliases "Special" Government Program 

There are nary typical authorities programs for indebtedness consolidation. Both nan Federal Trade Commission and nan Consumer Financial Protection Bureau pass that immoderate institution making this declare should beryllium avoided.

How to Avoid a Debt Consolidation Scam 

Follow these tips to debar a indebtedness consolation scam.

• Research Different Companies. Don't spell to nan first institution you find successful your search. Check several, reappraisal their accreditations, and inquire for referrals. 
• Compare Multiple Offers. Shopping astir pinch astatine slightest 3 different indebtedness consolation companies is nan astir effective measurement to find nan champion indebtedness position to consolidate your debt. 
• Read nan Fine Print. Make judge you cognize each nan position of immoderate indebtedness consolidation indebtedness and understand really overmuch you will salary each month, nan liking rate, erstwhile payments are due, and really agelong you will person to make them.
• Ask About Fees. Find retired really overmuch you will salary to consolidate your debt. Make judge nan fees don't conscionable adhd to your debt. 
• Get Everything successful Writing. In nan arena that problems arise, you'll person impervious of what you are responsible for arsenic good arsenic what nan institution is expected to do connected your behalf. 
• Don't Provide Payment Upfront. Legitimate companies will ne'er inquire to beryllium paid for their services upfront, though immoderate in installments counselors whitethorn complaint a humble enrollment fee.  
  

How to Research Debt Consolidation Companies

Here are immoderate cardinal ways to find whether a indebtedness consolidation institution is legitimate: 

• Check Online Reviews and Ratings. You tin cheque retired circumstantial indebtedness consolidation companies by sanction online astatine nan BBB aliases nan Consumer Financial Protection Bureau's Consumer Complaints Database. Reviews tin supply insights into nan experiences different customers person had pinch nan company.
• Verify Accreditation and Licenses. Verify nan legalization and licenses of a indebtedness consolidation institution aliases statement done charismatic websites aliases directories specified arsenic nan NFCC, nan BBB, aliases your authorities lawyer general's office.
• Seek Professional Advice. A credit counselor, accountant, aliases financial planner whitethorn beryllium capable to supply referrals to reputable indebtedness consolidation companies aliases imaginable lenders.

The Bottom Line 

Legitimate indebtedness consolidation companies activity to thief you get retired of debt. They typically are accredited aliases licensed by reputable agencies, and they won't push you to do thing you are uncomfortable doing aliases that is apt to make your in installments business moreover worse. Bear successful mind, too, that they whitethorn not beryllium capable to do thing for you that you couldn't do connected your own.