How to avoid debt settlement scams

When the collectors are knocking at the door, and you are swimming in a sea of debt, it is hard to ignore the advertisements that claim they can make all of your money worries go away.  Debt settlement companies thrive on those who are in dire straits, and have no qualms about taking even more money from someone who sincerely needs help, not more debt.

Debt settlement companies come in a variety of forms.  Often they are called debt consolidation companies or credit relief businesses.  These companies offer an initial consultation where they ask about how much is owed and to what credit companies.  The scam comes in several different forms:

•    They will sometimes negotiate with the credit card companies to get a lower pay off balance, but you will be left with much more to pay than the negotiated balance.  Most likely, you will end up paying what you originally owed if not more to the debt consolidation company.

•    The debt settlement company will consolidate your credit card bills into one monthly payment.  But carefully review the interest rate before signing the agreement.  Often the interest rate is higher than your credit cards, and you will be paying much more money in the long run.

•    Methods used to calculate interest rates can be quite complicated.  If the debt consolidation company is calculating interest on a weekly or daily basis, you will be paying as much as 100% or more of the balance you owe over time!

•    Debt settlement companies tend to take their payments and fees up front in your first few payments, and do not pay your creditors until later.  The reason is the debt settlement company wants their money first.  This can further negatively impact your credit if there is a delay in paying off your credit card companies.

•    Look for additional fees or high penalties if you make a late payment.  Carefully review the contract and ask about any other fees that could be applied over the term of the agreement.

Some ways to avoid the debt settlement scams are to first review the agreement terms in full, and do not cave into any pressure to sign.  If you are getting a hard sell from your representative, walk away.

Also you should check with the Better Business Bureau to review any complaints regarding the company.  If there are unresolved complaints or too many complaints in general, you should avoid the company.

Ask for references from the company.  If they are willing to share some references or reviews this can help you determine their legitimacy.
When you are suffering through a debt crisis, the last thing you need is to be taken advantage of.  Look carefully at your debt relief options, and consider going to a certified credit counselor first.