Debt Settlement Scams

Wise consumers will watch out for debt settlement scams when attempting to find solutions to financial pressures. While there are many reputable organizations that offer a variety of financial services from counseling to loan consolidation, there are also agencies that will use predatory practices to take advantage of families facing economic challenges. Some of these unscrupulous agencies will even advertise themselves as being non profit. This designation does not mean that the organization is not concerned about making money. Many of these so called non profit businesses will end up making a great deal of money at the client's expense. The terms "loan consolidation" and "debt settlement" indicate two very different approaches to serious fiscal issues. Loan consolidation generally involves paying off a collection of older loans with a new loan and rolling all indebtedness into one convenient payment. Settling debts can take a different direction. Organizations that offer this service will negotiate with creditors to come up with a plan that makes it possible for a debtor to pay off loans through one payment, but a new loan is not taken out. This practice can be done in a way that is completely legitimate. But debt settlement scams will often involve excessive interest rates, terms, fees, and penalties that are not in the borrower's best interest.

The promises that are made by debt settlement scams can sound reasonable on the surface. A financial counseling agency will promise to contact a client's creditors and attempt to negotiate a better arrangement on the repayment of debts. They claim that the actions that they will take will make creditors stop harassing the debtor, and cause collection agencies to back off. By reducing monthly bills on unsecured debts into one payment that is lower than the sum total of the previous payments, these counselors will ease the financial burden on a struggling family. Many agencies are able to follow through on these types of promises. Usually, debt settlement scams will engage in practices that do not benefit the client. Many counselors who are part of debt settlement scams will advise clients to stop paying their credit card bills as well as payments on other unsecured debts. The claim is that this lack of payment will indicate a hardship circumstance to the creditor. The creditor in turn, will then be more willing to negotiate more lenient terms with the borrower. In reality, this is not a wise approach to handling mounting debts. All the while, the client is paying fees, sometimes steep fees, to the agency. In terms of earning these fees, the agency is actually accomplishing very little. In fact, they may not attempt to contact the client's creditors at all. In the meantime, the client's creditors are knocking at the door demanding payment and assessing high fees and penalties against the debtor's accounts. And the borrower's credit score will take a beating due to all of the defaulted debts.

To avoid falling prey to debt settlement scams, a borrower should do careful research and look for specific warning signs before committing to work with any organization. In some cases, a credit reorganization service will collect money from a client and put it in a trust after extracting a large fee. While the money is accumulating, these companies are claiming to be negotiating with creditors. Even if negotiations are moving forward, interest payments, late fees, and other penalties are mounting up. There is no guarantee that any creditor will be willing to work with a reorganization agency. And rather than dispersing the debtor's monthly payments among the various creditors, many debt settlement scams will hang on to the money and will not pay the creditor until enough money to retire the debt has been paid. A potential client should ask very pointed questions in these areas before enrolling with any settlement organization. How will the funds be dispersed? What happens to a client's accounts while negotiations are taking place? If a creditor refuses to work out any kind of agreement, what happens to that neglected account? What will happen to a client's credit score while all of these bills are being neglected? If the answers to these questions are not satisfactory, a potential client should look elsewhere for help with pressing financial issues.

When choosing an agency, a client would be wise to only work with organizations that will make some kind of monthly payment to the creditor rather than putting the money in a trust and leaving it there. Predatory organizations will charge very high initial administrative fees in addition to monthly fees. All of these funds are collected for services that may not actually address any of the debtor's problems. The only way to get out of debt is to make steady payments to a creditor. Even though dealing with out of control debts can be frustrating, a borrower should remember that with hard work and consistent attention to monthly payments, these pressures will eventually ease up. The eternal quality of God is described in the Bible. "But thou, O Lord, shall endure for ever; and thy remembrance unto all generations." (Psalm 102:12)

If a consumer feels that they have been the victim of debt settlement scams, there are agencies that can help. Filing a complaint with the Better Business Bureau is an option. Another agency to consult might be the National Consumer Debt Council. Whatever approach a borrower might take in handling this problem, curtailing all association with the unscrupulous organization is always a good idea. Reputable professionals in the field can help a consumer find real answers to credit problems.

Stop Debt Collectors

By law, consumers have the power to stop debt collectors who become aggressive and begin harassing them for legitimate or invalid claims. In today's world, avoiding debt is almost impossible. But sometimes difficult or unexpected situations -- expensive car repairs, a job loss or a divorce -- prevent individuals from paying their bills in a timely manner. No matter how well people plan for emergencies, the unexpected happens to them at some point in life. When that time comes, consumers are responsible for the amount owed, but they are not criminals. Even borrowers have rights and are entitled to use them to stop debt collectors who are unfair.

People with money problems have options. If loans can't be completely repaid, help is available through credit counselors and debt management services. These agencies can negotiate with creditors to eliminate or reduce interest rates and late fees. Then, by combining loans together into a repayment plan or a single loan consolidation, consumers can arrange a single, low monthly payment that is manageable for them and acceptable to creditors. Many of these practices stop debt collectors before they begin. Ultimately, this is the best practice, but is not always possible.

When a person falls behind on payments, his or her account is turned over to an in-house collections department, usually within the creditor's institution. When a repayment arrangement cannot be worked out internally, the account can be given to a collector. These third party entities are collection agencies, individuals, attorneys or other organizations that collect money owed on the behalf of creditors and financial lending institutions. These parties are not linked to the original creditor and often can be more aggressive in methods than in-house firms, but consumers have the right to be treated fairly and respectfully. If not, they have the ability to stop debt collectors in their tracks. When a new delinquent account is received, a collector will contact the individual in a secured method: via phone, telegram or fax. Postcards cannot be used. Within five days, the agency must inform the individual of the pertinent details including amount owed, the creditor's information, and how to dispute the arrangement. Consumers have 30 days to notify the agency if the claim is not valid. If this is the case, agencies will contact the creditor for proof of the claim. If proof is not provided, the agency will drop all correspondence. If provided, communication will resume. Since collectors only get paid when money is collected, most are willing to negotiate with creditors for partial payment or a justifiable repayment plan.

Although most agencies are legitimate and work upon a solid ethical foundation, others have crossed a moral, and now legal, line. Repayment of debt has become a profitable business and some agencies have used unfair practices to make money. Scams like harassing individuals who do not owe money or threatening debtors with arrest or wage garnishment have forced people to seek ways to stop debt collectors and get relief for themselves, families and co-workers from obnoxious phone calls and never-ending threats.

The Fair Debt Collection Practices Act (FDCPA) was passed to stop collectors from using such unfair practices. These agencies are prohibited from threatening consumers with various violence, publishing personal information, using profanity or abusive language. The law limits phone calls to a reasonable number only between the hours of 8:00am and 9:00pm. Under the FDCPA, agencies cannot make any false or misleading claims that misrepresent identity, amount owed, actions that can be taken or falsely report information to credit bureaus. Unfair practices such as using deception, collecting more money than owed, taking away property, or depositing a post-dated check prematurely is also prohibited. The law allows consumers to stop debt collectors who have violated the law and request not to be contacted again. This gives consumers much needed peace of mind. "Whatsoever things are true, whatsoever things are honest, whatsoever things are just, whatsoever things are pure, whatsoever things are lovely, whatsoever things are of good report; if there be any virtue, and if there be any praise, think on these things." (Philippians 4:8)

The FDCPA protects individuals with outstanding personal, family and household loans. Once a violation has been experienced, a victim should send a cease and desist letter to the collections agency, requesting no further communication. Agencies are permitted make one last communication acknowledging the request, stating that further action could take place or details of what action will take place. A cease and desist letter can only be sent to a third party entity, not to the original creditor. Always send the letter via certified mail with a signed returned receipt to serve as proof in case of a court trial. In order to stop debt collectors, all communications must be in writing. Do not take phone calls. All communication must cease by law. If the collector continues, legal action can be taken. Consumers can sue the agency within one year of the violation to recover damages. Contact the state Attorney General's office and Federal Trade Commission (FTC) to file an official complaint against the agency.

However, just because people stop debt collectors, debt doesn't goes away. Consumers are still responsible for money owed. Creditors can take legal action or assign another collector to the account. If a problem exists, don't hide from creditors. Many are willing to help clients get out of a financial crisis if they are truthful with their situation. Some will provide a temporary restructured payment plan that requires only interest payments for a limited amount of time, usually six months. Others may agree not to report the problem to the credit bureaus if the consumer keeps up their end of the agreement. Honesty and truthfulness is always the best method in dealing with any crisis.

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