Don’t fall for credit card debt relief scams, just do it yourself

cutting a credit card with a pair of scissors

Credit card debt relief scams have infested the Internet during the long economic downturn, but the best way to reduce and manage debt is to do it yourself. Flickr photo.

Debt reduction scams and debt relief scams have been spreading like mildew for some time now during this painful and prolonged economic downturn. The terrible economy has put millions of people in financial trouble and one of the biggest problems is credit card debt.  People drowning in debt are easy targets for unscrupulous debt reduction services promising relief from all that stress and anguish. Even so-called legitimate debt reduction services charge hefty fees for something people can do themselves with financial discipline and effort.

The debt reduction mirage

To provide debt reduction services, most companies pitching these programs offer loan consolidation plans in which you take out another loan to pay off existing debt. Other debt reduction services will offer to negotiate with your creditors to arrange a payoff for less than you owe. All they care about is signing you up, not whether or not their programs will actually work. And one thing they won’t tell you is that paying less than you owe shows up on your credit report as failure to pay off your debt in full, which wreaks havoc on your credit score.

Debt relief predators

It should be no secret that many companies promising to help consumers overwhelmed by credit card and other debts are financial predators that charge high fees but deliver little or nothing in return. The Los Angeles Times reports that investigators for the Government Accountability Office posed as distressed consumers seeking help from debt management companies. The companies gave them wildly exaggerated descriptions of the firms’ success rates and sometimes promised savings of as much as 50 cents on the dollar.

Debt reduction false promises

After paying big up-front fees to debt management companies, often running to several thousand dollars, many consumers end up deeper in debt than they were before. MSNBC tells the story of a woman in North Carolina who was promised by a debt management company that they would lower her interest rates enough to pay off credit card, mortgage and car loan debt three to five times faster. She was assured that for $499 she would save $2,500,  and savings from lower interest rates within the first 30 days would more than cover the fee. No interest rates were reduced, the company would not refund the $499 fee as they promised and the Federal Trade Commission sued the firm.

Common debt relief scams

A common trick played by debt relief scam artists today is “government approval.” The Los Angeles Times article reports that advertisements by debt management companies, as well as statements by company representatives to GAO investigators, provided evidence that the firms lead clients to believe their services are part of a government program similar to the recent bailout of troubled banks. One company that shows up at the top of search engine rankings for debt relief calls itself the Federal Debt Relief Program. Another is called “U.S. National Debt Relief Plan.”

Do it yourself debt relief

There are hundreds of debt reduction and debt relief companies infesting the Internet, but there is no government backed credit card debt relief program. Debt relief has become a huge industry designed to kick people when they’re down.The best way to debt reduction is to get on a budget, pay down your debt and pay your bills on time. If you’re struggling to make payments, contact your lenders to see if you can negotiate better terms, lower payments or refinance a car loan or home loan.

Free debt management advice

If you fall behind on payments and aren’t sure how to solve  your debt problems, contact the
national foundation for credit counseling. The NFCC is a nonprofit community organization that provides free and confidential debt management advice to anyone that needs it. You can consult with them over the phone or in person. To find a counselor in your area go to nfcc.org.

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