When you’re struggling to pay off your debts, relief such as debt consolidation can be a great option.
A debt consolidation loan allows you to consolidate your existing debt into a single loan. Not only can you reduce the number of monthly payments you’re making, but may also be able to get a lower interest rate, especially when your debt is high-interest debt like credit cards.
Unfortunately, the debt consolidation industry is a popular target for scammers who seek to get money from those in a vulnerable situation without actually helping them to manage their debt.
To make sure you don’t fall victim to this type of situation, we’re sharing some dos and don’ts of debt consolidation, as well as some signs to look out for that could indicate a debt consolidation scam.
5 Surefire Signs of a Debt Consolidation Scam
There are several debt consolidation scams out there that promise to help you manage your debt but just leave you in an even worse situation.
Below are a few signs of a debt consolidation scam. If you see these red flags, run in the other direction.
They contact you first
Legitimate debt consolidation companies don’t generally cold call or email prospective customers. If you’ve received unsolicited communications from a debt relief company, it may be a scam. In most cases, companies won’t contact you until you’ve reached out and joined an email list or requested more information.
They charge upfront fees
You should never have to pay for debt consolidation or other debt relief upfront. In fact, the federal government prohibits debt relief companies from charging upfront fees. And while some debt consolidation companies may charge for their services, you should have to pay until they’ve actually provided you with a service.
Don’t hand over the payment until your debt has been consolidated or settled.
They pressure you to sign up
Debt consolidation scammers often pressure prospective “customers” to sign up for their services and share personal information. They may call or email you frequently. They might also try to play with your emotions, instilling fear and shame around your debt and claiming that you need the services they’re offering.
They promise to get your debts forgiven
In some cases, a debt relief company may help you to settle your debt for less than you owe. But it’s illegal for a company to guarantee that they’ll get your debt forgiven or settled. If a company promises any specific results, there’s a good chance it’s a scam.
They tell you to stop paying your bills
Some debt relief companies tell customers to stop making their monthly payments while they consolidate their debts. In some cases, they may claim it helps give them the leverage they need to settle the debt for a lower amount.
Here’s the problem, though: once you stop paying your bill, your creditors will report your missed payments to the credit bureaus. Not only will it harm your credit score and possibly lower it by 100+ points, but you could also rack up late fees and additional interest.
The good news is that it’s absolutely possible to pursue debt relief without skipping your monthly payments or taking your credit score. And a legitimate debt relief company will want to help you improve your overall situation, not consolidate your debt at the expense of your overall situation.
Dos and Don’ts to Avoid Debt Consolidation Scams
Unfortunately, debt consolidation scams are more common than ever and target individuals who are already in a vulnerable financial position. Below we’ll share a few dos and don’ts to help you avoid becoming a victim of such a scam.
Debt Consolidation Dos
Debt Consolidation Dont's
FAQs
What is a debt consolidation loan?
A debt consolidation loan is a personal loan that allows you to consolidate all of your debt into a single loan with one monthly payment. The best debt consolidation loans are often used for credit cards and other high-interest debt.
How do I know if a debt consolidation company is legit?
Before working with a debt consolidation company, make sure they don’t have any of the red flags we discussed previously in the article. You can also look for companies that have good customer reviews and are recommended by trustworthy third-party organizations.
How can I avoid debt consolidation scams?
Learn how to spot a good personal loan company. You can avoid debt consolidation scams by thoroughly researching any company you’re considering working with, speaking with multiple companies before choosing the right one, and avoiding red flags that indicate there may be a scam.
What are the disadvantages of debt consolidation?
Even legitimate debt consolidation programs aren’t right for everyone. There could be additional costs associated with debt consolidation, including fees and a higher interest rate. Additionally, they don’t make your debt go away, nor do they help solve the financial problems that may have put you into debt in the first place. There are other debt consolidation mistakes and missteps you should watch out for.
Where to Get Help
Unfortunately, many people have fallen victim to scams in an effort to get relief from their overwhelming debt. Luckily, there are now plenty of resources out there for people who may have been the victim of a scam or who want to avoid becoming the victim. Here are a few places you can go for help:
- Visit the Federal Trade Commission’s hub for debt relief and credit repair scams.
- Consult a credit counselor for help deciding the best way to find relief from your debt.
- Report debt relief scams or any other type of fraud to the Federal Trade Commission:
- Contact your state’s Attorney General to learn about consumer complaints for a debt relief company you’re considering working with.
- Visit the Consumer Financial Protection Bureau’s Consumer Complaint Database to see if a debt relief company you’re considering working with has any consumer complaints against it.
