Fraudulent debt elimination and credit relief scams prey upon debt-strapped borrowers. These phony programs seem too good to be true, because they are. Gullible debtors who are lured into these plans, particularly those with unsecured obligations like credit cards, often lose more money than they originally owed.

Scam No. 1 — Debt Elimination Scams

Avoid fraudulent programs that claim to eliminate, terminate or cancel debts, especially credit card obligations, or have them declared invalid.

They often guarantee debt elimination results, and usually charge an upfront membership, “voluntary contribution,” “donation” or service fee from several hundred to thousands of dollars.

Individuals who enroll in these programs won’t lessen their debt, often lose the up-front money and further damage their credit ratings. Worse, creditors can sue those who use fraudulent means in trying to eliminate a legitimate debt.

The scam artists promise to wipe out debt using one or more strategies that sound enticing, but have no basis in law or finance:

1. They cite secret laws known only to them as the basis for eradicating financial obligations.
2. They allege that creditors lack authority to extend credit, lend money or charge interest, and that the contract is illegal.
3. They assert that a person’s debt is really an asset to the credit-grantor, making the obligation in effect a deposit in a bank.
4. They persuade debtors that they can establish their own arbitration companies to certify an award that diminishes or cancels a debt.
5. They state that creditors will not pursue debt collection after one participates in one of these schemes.

The common thread among these up-front fee schemes is to fool debtors into paying often large sums of money to have an obligation cancelled. Sometimes, the ruse involves consumers submitting false documents supplied by the scam artists to creditors, such as fake arbitration awards.

Victims of these schemes lose more than their up-front money. Credit card companies often become more assertive in demanding repayment and may sue to collect. Some victims have their identities stolen.

Scam No. 2–Debt Reduction

These schemes promise to reduce a consumer’s debt 50% or more by enrollment in a debt negotiation program. Con artists convince victims that creditors will cease pursuing repayment. In fact, collection efforts not only do not stop; they often become more relentless. In reality, these plans seldom if ever lessen debts, and they often inflict severe harm on borrowers, sometimes forcing them to file for bankruptcy.

How the scam works:

Credit counsellors claim they have unique alliances with creditors, and will use these special relationships to negotiate debt for a fraction of the amount originally owed. Debtors are told to suspend making regular payments, and instead to send funds to the debt management firm often a for-profit firm posing as a friendly non-profit organization that claims it will deposit the money into a trust account dedicated to paying creditors. Counselors promise they will use their clout to halt annoying calls and letters from creditors. Debtors are thus duped into believing the advisors are applying the trust account funds to pay their now-reduced outstanding debts.

In reality, the counselors first divert hundreds of dollars as fees, which they do not always disclose. Consumer payments are neither applied to the trust accounts nor sent to creditors, until these fees are paid in full. Consequently, creditors often receive nothing for months and pile on late fees and penalties and may boost interest rates. Many borrowers are shocked to discover that their debts actually increase after enrolling in these programs. Often, unpaid creditors pursue collection more vigorously, and may sue debtors who have defaulted.

Legitimate Debt Management Programs

Trustworthy debt counselors Atlanta, can help stop collection calls and reduce interest rates and late and over-limit fees. They cannot repair a damaged credit report, or reduce the amount of debt. Negotiation that lessens the amount owed is listed as a score-damaging charge-off on a credit report, and the blemish remains on one’s record for seven years. Also, cancelled or forgiven debts must be reported to the IRS as income.

Reputable counselors also can help in developing budgets, managing money, using credit wisely and building a savings plan. They can assist in paying down outstanding debt through repayment programs that may lessen monthly payments and interest and related fees.

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1. Debt Elimination Reviews
2. DIY Guide To Debt Elimination
3. Credit Card Debt Consolidation and How To Eliminate Debt

When you are desperate for debt help, consumer credit counselling services can be very useful however finding a reputable consumer credit counselling service with debt solutions that meet your needs is not always that easy.

Here are some key questions to ask when shopping for a reputable consumer credit counselling service.

What services does this consumer credit counselling agency offer?

If the only services the agency offers are Debt Management Plans you should look elsewhere. A professional and reputable consumer credit counselling agency will also offer a full range of services and counselling.

A reputable agency will take the time to sit down with you in person and fully discuss your financial situation and debt problems with you. This should take you at least an hour to an hour and a half. Ideally you should leave with a personalised plan that may or may not include a Debt Management Plan.

If the credit counselling service you’re dealing with tries to offer you a Debt Management Plan within the first 15 minutes, they clearly haven’t taken the time to understand your financial situation.

What exactly are all the fees that you will be charged?

Lets face it, you are already in trouble because of your finances so the fees you will be paying a vitally important. You should be able to get detailed information about the credit counselling agency’s services and fees in writing before disclosing any of your personal information.

If you can’t get a full understanding of all of the fees up front, that should be a red flag to you that something is wrong.

Where will your payments be going?

If you decide to proceed with a credit card debt management plan, you must ensure that all of your payments will in fact be distributed to your creditors. Some credit counselling agencies will claim the first month’s payment is a fee which is not a great sign of a reputable credit counselling service.

In addition, any reputable credit counselling service should work with all of your creditors, not just the companies that they have contracts.

How long will it take to pay off your debts?

A realistic Debt Management Plan will take somewhere between 30 to 60 months to complete on average. You should be very sceptical of any consumer credit counselling service that suggests a quick fix solutions or alleges that they can wipe out your debts fast.

How are the counsellors trained and paid?

Reputable consumer credit counselling agencies provide adequate training for their counsellors and ideally they should pay their employees a salary. If the consumer credit counselling service you’re considering pays its staff a bonus or a percentage of your Debt Management Plan then maybe you should, look elsewhere.

Related posts:

1. Getting a Credit Counseling Service – 5 Most Important Questions to Ask
2. Credit Counselling
3. How to Choose a Credit Counseling Agency