The news is full of stories of foreclosures, rising credit card rates and huge lay-offs. People are struggling to pay their bills. Creditors are calling, expecting people to forgo paying rent in order to pay their monthly payments. Meanwhile, late fees are mounting.
This precarious financial scene is the perfect opportunity for vultures and scammers to swoop in and offer to help eliminate or manage your debt. But are they actually offering help, or are taking matters from bad to worse?
Debt Elimination Scams
You've all seen the advertisements that promise to eliminate outstanding debt. According to a Federal Reserve System Supervisory letter, the company will prepare legal documents based on your financial obligations. They are then presented to your bank, mortgage company, etc. in an attempt to satisfy the debt.
These companies support their claims by stating that a specific government agency, like the Federal Reserve, supports their work. Not so, states the Federal Reserve Bank. "Debt elimination programs that claim Federal Reserve approval or acquiescence and the satisfaction of legitimate debts through the presentation of suspicious documents are totally bogus. The Federal Reserve does not approve and is in no way involved in any program aimed at eliminating anyone's debt obligations."
Debt elimination companies generally charge between $1200 to $2500 up front. But UCAN's Consumer Watchdog Blog warns that the cost could be much higher. "The risk for identity theft is drastically increased because victims have provided all of their personal information to the scam artists."
Debt Consolidation Scams
They're all over the Internet. They appear in your e-mail inbox. They advertise on television day and night: "Reduce your debts by 50 percent or more!" or "Repair your credit report!! Eliminate late fees!" Could this possibly be true? Katie at SmartCreditInfo.com writes, "One of your jobs will be to navigate through the scams to find one of the few reputable ones that exist."
One form this scam takes is the "bump up" letters. Katie explains, "These bump up letters will state that the creditors have changed their policy and that they [the credit management company] will now require a larger monthly payment in order to give you the benefits of Debt Consolidation. So your monthly payment to the Debt Consolidation company gets larger and larger until suddenly it no longer resembles the payment that you agreed upon when you signed up."
Katie also recommends that before signing up with a debt management program, you check out the company with your state attorney general's office and the Federal Trade Commission.
NEW CREDIT CARD LAWS
New credit laws designed to protect consumers went into effect in 2009. However, ConsumerAffairs.com warns that unless consumers adjust the way they use credit cards, the new law won't necessarily improve your situation. Educate yourself on these new laws at MSN Money and other credible sources.
Your Credit Report
The Federal Trade Commission has published "Facts for Consumers" (available at http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre13.shtm). This document explains how manage your own credit report.
Bottom line, if it looks too good to be true, it most likely is. Knowledge is power.
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