Debt elimination : dodgy deals
Thanks to the dishonest activities of a small number of debt consolidation companies the whole debt management industry has got a bad name and many people are understandably sceptical when it comes to employing anyone to deal with their financial problems. Use our information to prevent getting caught up in a debt elimination scam.
Credit counselling or consolidation companies who have had complaints or lawsuits taken against them will often just change their name and location and set up business all over again. Look for long-established companies with a clear track record. As the phrase 'credit consolidation' has lost some of its integrity many of the companies have now set up using terms such as 'debt settlement' or 'debt negotiation' in their titles instead.
Credit repair agencies
Avoid any company that claims it can clear up your credit record. If accurate information about bad loans, bankruptcy or court judgments appears on your credit record it cannot be legally removed. Companies that claim they can improve your credit rating are usually a scam. Use your money to pay your bills on time and avoid taking on new debts or credit cards. This is the best way to improve your credit score.
Don't trust any company that says it can help you to invent a new credit record. Most explain that you can do this by applying for an Employer Identification Number to be used instead of your Social Security Number to get credit - at a different address of course. This is known as file segregation and is completely illegal; you could be charged with fraud.
Non profit companies
Although there are reputable non-profit organizations out there who can offer good advice on debt management there are also many unscrupulous companies offering questionable services. Just because a company says it's non profit is no guarantee that it's legitimate. Many claim they can negotiate a reduced payment to your creditors to clear your debt in return for hefty fees. Usually they claim this will not affect you credit record. They'll also advise you to stop paying your original creditor and make payments to them instead.
You have no guarantee that your creditor will accept partial payment of the debt and if you stop paying off your credit card bill you'll accrue late fees and interest. Failure to pay the escalating debt will be noted on your credit report and your creditor may never see the cash that you are paying the debt management company. Avoid any company that asks for 'voluntary donations'; these are not payments towards debt elimination but hidden fees to the company.
Some so-called Christian debt consolidation programs are often the least reputable of all although they outwardly appear to have your best interests at heart. For more information see our page on Christian debt management .
Companies that offer to give you a certificate to take to your bank to eliminate your entire mortgage by taking advantage of a loophole in the system are completely bogus. There's no such thing as instant debt elimination. They're often titled 'Bond for Discharge of Debt' and look pretty official. They might even state they are based on claims to the US Treasury or Federal Reserve System but you'll be paying a massive fee for a worthless piece of paper.
Avoid any company that offers a quick fix solution to your debt problem. It might sound attractive but is almost certainly a scam. Debt reduction and management is a gradual process and takes time to sort out.
Avoid companies that refuse to give you information in writing or tell you there is no time to get the printed information to you. Debt elimination and management doesn't have 'special offers' that run out at midnight - don't get pushed into making hasty decisions or signing documents you haven't read properly.
Making a complaint
The Federal Trade Commission (FTC) regulates the marketplace to prevent unfair business practices being used against the consumer. To file a complaint against a debt management company call the FTC on 1-877-FTC-HELP (1-877-382-4357).