Debt Reduction Scam

A debt reduction scam often includes claims that debt can be totally eliminated or reduced drastically to the point that a debtor may only have to pay a small percentage of the principle owed. A debtor should watch out for scams that include large membership fees and other types of fees for their services. Some companies involved in a debt reduction scam say they can negotiate with all creditors to get interest rate reductions, stop all late and over the credit line fees and negotiate for payoff to be a fraction of what is actually owed. These types of companies will charge the debtor based upon the amount of creditors or by a percentage based upon total debt. Their fees have to be paid up front before negotiations can start.

Settlement programs include charging up front administrative fees and monthly service fees to work with creditors on settling for a lesser amount than what is originally owed. Oftentimes negotiations can take a great deal of time to complete; meanwhile the client is still paying the monthly service fees. Later on a client may find out the creditor or creditors are not willing to negotiate or will only negotiate a half a percent or less on interest rates but may insist on the total amount being paid. A debt reduction scam makes promises before they start negotiations and end up not delivering what is promised. "The wicked borroweth, and payeth not again: but the righteous sheweth mercy, and giveth" (Psalm 37:21).

What some settlement companies do not tell the client is that some creditors will not negotiate once the account has been sent to a collection agency. Also many will not work with customer's who have not had an account with them for a certain period of time. This could be nine months and even up to a year. Some creditors will not negotiate at all. The creditor may claim that the customer had the ability to read the terms and conditions before he or she applied for the account and should understand that all charges including interest and late fees or other fees must be repaid. A debt reduction scam never mentions to their clients that some creditors will not negotiate.

Creditors that accept arrangements on past due accounts have guidelines that are normally never mentioned with a debt reduction scam. A creditor may expect the customer to make several payments on time before they will negotiate at all. Others ask that the monthly payment arrangements have to be a certain percentage of the total balance owed. Being late on one of these monthly payments could mean default of the agreement which could mean that the creditor will no longer negotiate a settlement. Legitimate companies who work in debt settlement let their clients know these things up front before they have them sign a contract for services.

One of the lines used by businesses that advertise these types of services is that they deal with the same creditors over and over and know what will be possible. While this may be true they can not make claims for every debtor based upon previous arrangements for other debtors. Sometimes there could be an extenuating circumstance where the creditor refuses to do business with the settlement company or there could be other problems. The customer may have tried negotiations before through other companies that were not legitimate and the creditor may have not received several payments during this time period by the customer. This could lead to the creditor requiring that the customer make up the late payments before other negotations can be made. A debt reduction scam might keep the money given to them by their clients instead of making the payments to creditors.

If the customer has a good payment record and has had an account with a creditor for over a year they have a much better chance of successful negotiations compared to the customer who has not had a good payment history especially if the account has only been opened for a very short period of time. A debtor might try contacting their creditors and offering them a settlement before running the risk of being part of a debt reduction scam. A debtor might be able to work out a temporary arrangement with the creditor to reduce the interest rate and stop all late and over the credit limit fees so he or she can get caught up on payments. If the customer shows sincerity by honoring the agreement then this type of arrangement can benefit both parties.

Fortunately there are companies that offer legitimate services to help debtors with financial obligations. The first step is to find one that is legitimate and set up a consultation with a professional to find out what options are available. Having a good reason to request negotiations will make a creditor more willing to help. Some reasons include loss of job, medical illness, divorce, job injury, or job layoff. A counselor can work up a plan to help the client restructure the terms of his or her obligations by negotiating with creditors. This may include lower monthly payments through reduction in interest and late fees. When looking for a legitimate company that is not part of a debt reduction scam the debtor should do some research online and contact the Better Business Bureau. A person can use common sense to figure out if the claims made by some companies are realistic.

Add to: File Insurance Business article Teen Photo Images