5 Common Debt Management Scams and How to Avoid It

Written by admin on December 6th, 2010

The main purpose of a debt management program is to get you out of your overwhelming debts and avoid bankruptcy. That’s why a lot of debt management companies began springing everywhere offering debt reduction options for desperate people seeking solutions to their financial problems. However, many of these debt management companies may be unreliable, may charge their clients with high fees, while some are just plain fraudulent.

Remember that these companies will negotiate with your creditors in behalf of you. So it is very important to make sure that the company you will work with is trustworthy and reliable for a successful settlement of your debt. Here are the 5 common debt management scams and tips on how to avoid it.

1. Large upfront fees. Some debt management companies ask for large upfront fees like consultation fees and enrollment fees. As debt experts will tell you, the normal initial fee charged by reputable debt reduction companies is up to or as much as 0 if you have a lot of debt. In order to avoid such outrageous fees, make sure that everytime the agency ask for fees you know what it will cover and get it in writing.

2. Incomplete financial information. A debt management agency that offers reliable solutions such as debt reduction services and a debt management program will certainly require you to provide your complete information which includes your account status, creditors name, balance transfer, cash advance and large purchase activities, minimum payment amounts and interest rates. Your complete financial information is needed by credit counselors before they can tell you how much your monthly payment will be or how long it will take to complete the program. That’s why you should beware of anyone who gives you estimate payment and time schedule without thoroughly studying your financial status.

3. Late or non-disbursement of payments to your creditor. Fraudulent debt management companies are known to disburse payment late and getting their clients into trouble wit their creditors. In order to to make the most of your debt management program and their debt reduction services, avoid making your financial troubles get worse, make sure the agency will disburse payments to creditors on time and demand them to send you a statement each month so you can keep track of the payments made.

4. Misuse of your personal information. When you are enrolled in a debt management program, it is inevitable for you to disclose some of your most sensitive financial information. In order to protect your personal information, you should make sure that the agency won’t sell it to others or share it to anyone. Ask about the company’s confidentiality agreement or privacy policy, if necessary.

5. Get a contract. Before you apply in a debt management program, make sure that you get everything in writing. Do not rely on their verbal promises without getting a contract. But before signing a contract, you should read it first to make sure the terms and conditions are the same as what you have discussed.

If these fraudulent acts of several debt management organizations are not avoided, people will unsuccessfully regain control of their finances and might lead them to declare themselves as bankrupt. If you are still confused as to how you can avoid fraud in debt settlement and in a debt management program, feel free to consult a debt reduction law center or other non-profit organization that can provide you with reliable ideas to becoming debt-free.

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