Two trillion dollars -- this is the total amount of debts that consumers in the United States have and it continues to rise as time passes. Just one decade ago this amount was 100% less than it is today. Now, it has come to a point that almost everyone has debt. Sadly, people with debts who are not able to cope with paying their bills think services of a debt relief company can help them. Just like in any other kind of industry, a lot of scams occur in this kind of trade and it puts those people who are already in debt into a worse financial situation.
Forms of Debt Relief
There are mainly two forms of debt relief namely: debt consolidation, and creditor negotiations. To understand how scams in this kind of trade work, you should first know how things normally work with these companies.
The most popular method would be debt consolidation. This is where a debt relief company combines all your small debts, which most likely have high interest rates like credit cards, into one loan that has a lower interest rate, compared to the former. In this way you can recover from your debt and gain control again of your financial matters and have financial stability once more.
The second choice is creditor negotiations. Credit negotiation will include having a middle man do all the debt negotiation for you. You will have to hire a company who has expert negotiators to talk to your creditors. They will be the ones to convince your creditors to lower your total debt. Most likely, they bargain by threatening creditors that you may file for bankruptcy, which is a really bad situation for creditors because they may get nothing from you. This method can be extremely effective if you are hesitant or unable to borrow via debt consolidation loans.
The Truth About These Services
Services like these are not free. Although you may encounter organizations representing themselves as public servants or non-profit, the truth is that almost all of them are in business simply because they are able to make a profit. For instance, many individuals that need debt consolidation are very thankful for the helping hand. The promise of lower monthly payments becomes the main reason why people fail to closely examine the loan contract offered to them.
Here Come The Scams
There are different ways you can be scammed with these services. For debt consolidation, one scam would be in the form of hiding huge debt consolidation fees or service fees in the loans principle. For instance, your outstanding debt is $50,000, your lender could provide you with as much as $80,000 worth of loan, in which the $30,000 is unknowingly comprised entirely of fees. Then, your lender would extend your loan for years and years. In effect, it would seem that your monthly loan expense is lower, which is a disguised favor for you, and you do not ask any questions.
Another, form of scamming would be extreme variations of interest rates throughout the duration of your debt consolidation loan. For instance, your lender would offer you a loan that has an interest rate of 4% for the first 2 years, after this duration, the rate transforms into a gigantic 15%, in effect you lose your ability to pay and in turn go back to your lender to ask their help to consolidate your debt again.
On the other hand, credit negotiators may seem to be the good guys that offer to be the problem solver for your debt troubles. However, what most people do not understand is that they are making the whole process more complex compared to how it actually is. In reality, you can simply be the one to do the negotiation with your creditor yourself. Bankruptcy’s threat is a realistic one, which is why most lenders are more than willing to offer alternatives to you. By simply cutting out the expense for your credit negotiator, you get to have fewer expenses.
How To Avoid Them?
The best way to avoid being victimized by scamming companies is by researching the service you are looking at. Be sure to study any kind of contract first before you decide to sign. And most of all, if you can do it yourself, then do it!
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