Avoiding Debt Consolidation Scam

Many people assume their debts cannot be remedied but after they apply these three steps,all they get to say is whoa.People who are concerned and desperate about their debt situation pose exceptionally tempting prey to scammers. Many cons are as simple as companies asking for payment up front and not delivering on the loan. By the way, U.S. and Canadian companies legally cannot call you and promise you a loan then ask for an advance fee before the transaction is completed [source: Federal Trade Commission (FTC)].

Another trick is to claim non-profit status. The FTC has exposed several so-called non-profits, such as the National Consumer Council and Debt Management Foundation Services, which were funneling funds to a for-profit company. Given their deceptive names, it's not surprising that unsuspecting people were willing to trust them.
The victims of these scams fell deeper in debt and suffered a rise in interest rates, as well as other penalties and damage to their credit. Some people even went bankrupt after being misled by these fraudulent companies. In addition, by hiding behind supposed non-profit status, these organizations called numbers on the National Do Not Call Registry to advertise their services. The FTC charged them with not only lying about what their services would do, but also failing to disclose the penalties and fees that would result.
Now that you're looking over your shoulder, why don't you take the following precautionary steps recommended by the FTC before taking out a loan with a finance company:

1. Be cautious of companies that pressure you into a plan or make any guarantees without looking into your specific needs.
2. Make an intensive research on the company and the services it offers. It is better if it offers a wide range of options and education on how to handle debt. (It also can't hurt to look up companies on the Better Business Bureau.)
3. Contact your creditors and notify them if they will work with the company.
4. Read over the fine print: Make sure to carefully review the agreement, ensuring that it outlines the finance company's plans and its timeframe.
5. Before you begin making payment to the finance company, ensure that your creditors have accepted the company's proposed plan. Until they do, be sure to continue paying your bills as usual.
6. After you begin the program, keep a close watch on your statements and call the creditors to ensure they receive payments.

Although they aren't exactly scamming you, many finance companies simply don't warn you about the excessive fees they charge. These fees can add up so that you pile on even more debt. In a related article on debt settlement, SmartMoney writer Aleksandra Todorova named a few fees to watch out for:

• A portion of the total debt (which could be up to 18%)
• A portion of the amount you save (which can be around 25%)
• Sign-up fees
• Monthly fees (both service charges and flat fees)

The FTC also cautions against companies that pressure you to pay "voluntary fees." One company that the FTC exposed, called AmeriDebt Inc. collected about $200 million in hidden costs like these [source: Federal Trade Commission].
Just as diet pills are usually too good to be true, so are most debt consolidation offers. Remember, no new loan is going to free you instantly from your debts. But like losing weight, you can climb out of debt with good old-fashioned discipline.