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What are Debt Settlement Scams?

What are Debt Settlement Scams?

In the period where the United States economy was facing a crisis of recession many scams regarding debt settlement started surfacing. In the following article different aspects of such scams, and the methods that can be used to avoid them, have been discussed. To know more, read on.
Scholasticus K
The economic recession was a hard time for consumers in the United States. From the point of view of normal individuals, the scenario was very weird and trying. Consumers had borrowed a set of loans and used credit cards during stable economic conditions. During the economic recession many people were fired, or laid off their jobs. These people had quite a high amount of debt, which they were unable to repay.

The debt started piling up, and multiplying as a result of late payments, installment defaults started happening. In order to get rid of this debt, many people joined debt settlement programs, consulted companies and agencies. The basic idea was to get rid of a portion of debts. However, some scams were reported to the Federal trade commission.

Debt Settlement

The concept of debt settlement is basically, a service that is provided to the people who are deep in debt. The service is often also known as a debt negotiation or a debt arbitration process. The entire process principally involves negotiation with the credit card company and the lender of the loans. The result of negotiation is that as a consumer your debt gets reduced by a certain amount, in return of an assured and quick repayment schedule. Here's what can happen, if one is not careful while opting for debt settlement.

About Debt Settlement Scams

The recent scams were characterized by the following difficulties.
  • Unrealistic Claims: Some of the claims made by the debt settlement companies are commented to be unrealistic. In many cases, advertisement claimed that the debt relief company would reduce the debt by 50% but conditions would apply. Experience of those who opted for such services, says that the debt never got reduced by 50%. Thus the percentages were just wild claims by the companies.
  • Hidden Costs: Often debt settlement companies charged hidden costs as commissions to their consumers. The details of these costs were written in small and ineligible font on the agreement, which was unlikely to be noticed by the consumers.
  • Translucent Disclosures: Debt negotiation companies often provided translucent facts regarding the repayment of debts. The credit score suffered drastically as a result of the negotiation, and in many cases extra fines were also levied by the credit card companies. Such scams about credit card debt settlement were quite rampant till the Credit Card Reform Act of 2009 was passed.
  • Heavy Charges: Another element of these scams was that people were charged quite excessively for reduction of debts, for example, if the company reduced 15% of the persons debts, then the company would charge the consumer 1% commission plus the normal fees.
Basically, these activities can be classified as unethical and consumers ended up paying through their nose to such companies.

Tips to Avoid Debt Settlement Scams

There are a few simple steps which can be used to avoid being trapped in fraudulent debt settlement scheme.
  • There are several reputed, well-known debt settlement companies and agencies that you can approach for debt settlement services. Many such services are also recognized by the Federal trade commission.
  • Check if the debt counseling services of such companies are recognized or not.
  • Check the agreement document thoroughly, scan all written matter and all (*) marks that suggest applied conditions. In short, read the finer print.
  • Check up the company with the legal system, as well as the consumer protection agency.
  • Read every paper carefully before you sign, and ask for a satisfactory explanation to any content or rule which you find odd or unexplained. Do not hesitate.
For a person in debt, getting out of it becomes a top priority, and in such cases it has been observed that people grab the first opportunity or service that offers a settlement, without going through the fine print. Hence we hear many scams and frauds arising from settlement services. The right thing to do while in debt is to opt for a government approved scheme, and make an informed decision.