How to Avoid Debt Consolidation Scams

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To some, debt can be a more frightening proposition than death. 

In fact, according to a 2017 survey, debt ranks as the single biggest fear in the lives of young adults. 

While debt consolidation may seem like a viable remedy for dealing with financial woes, choosing the right company to work with can be overwhelming. 

A big misconception people often have is that debt consolidation companies are rife with scams and questionable tactics. Unfortunately, this perception is often promoted by the banks that these very people are indebted to. This preconceived notion couldn’t be further from the truth. 

Debt consolidation companies can be the most affordable and efficient method of easing your financial burden using your current monetary resources. 

How Debt Consolidation Works

Debt consolidation is a process that merges all of your unsecured debt together into a single manageable payment. With lower payments and better term agreements, it can be a great way to pay down debt while saving money in interest. 

Debt consolidation as debt resolution can help you when these professionals negotiate with creditors by shaving usually about 30% off your total debt balance owed. Take for example someone with $25,000 in credit card debt. With the help of debt negotiation specialists, debt balances can be lowered to $17,500 and that includes the fees for the debt consolidation. In the end, borrowers end up paying thousands less than their initial balance.

A person’s credit score may temporarily go down when beginning a debt consolidation program, but upon relief, the individual’s FICO score often rebounds higher than where it began prior to the program.

For most people, a minor temporary drop in credit is well-worth paying off mounds of debt.

How Banks View Debt Consolidation

Debt consolidation companies often get viewed in a negative light due to false pretenses that have been known to be promoted by banks. Banks don’t like competing against debt consolidation solutions because it is in their best interest to keep people in debt over the long term. Banks have been known to spread misinformation about debt consolidation in the form of debt settlement or debt resolution for this very reason. They use this to push off debt consolidation companies as “scams.” The truth is debt consolidation in the form of debt settlement is a valid solution to a number of financial problems. It could even help you secure your financial freedom.

The question borrowers should focus on is, “Do I really need access to credit to take on more debt in the next couple years while in a debt resolution program or do I want to finally pay off my debt?” 

If a person does not intend to purchase a car or a home in the next couple of years, debt consolidation is the most logical solution. Having an exorbitant amount of debt often precluded people from buying a house or car anyways to do debt-to-income constraints.

Take our friend Jim, for example.

Jim has been suffering under a mound of debt after falling on difficult financial circumstances. Let’s see how Jim could benefit from a debt resolution program.

  • Jim has a 700 FICO score and enrolls his unsecured debt into a debt resolution program. 
  • After going into default on the unsecured debt, his credit rating temporarily drops to a 550 FICO score.
  • Just a few months later, a settlement is reached for less than the balance owed and his FICO score increases to 600.
  • Upon completion of the program (usually under 2 years), Jim’s FICO score has increased to 725. He finds that his FICO score is higher than before due to an elimination of unsecured debt and he now qualifies for low interest credit options that he never would have if he had continued paying the bank.

This is just one example of how debt consolidation can help solve financial problems.

How to Spot Debt Consolidation Scams

In the past, the debt consolidation industry had some unscrupulous characters that would require upfront fees from customers, but never actually provide the debt resolution service they promised the customers. As with any new industry, there are people that try to take advantage of the situation prior to regulation.

In October 2010, new laws were passed to protect consumers from these types of dishonest practices in the debt consolidation industry. 

Even though new regulations have been created to help protect customers, there can still be red flags that consumers should be on the lookout for. 

Here are some signs you might be dealing with potential scams.

  • Aggressive companies: if a company begins to exhibit signs of pushiness or aggressive tactics
  • Lack of experience: Companies without a long track record of success or with a high number of negative reviews should be avoided
  • Money requested upfront: requesting large upfront fees prior to tangible services being performed
  • False promises: claims of significantly lowering debt (e.g. 75% or more) or eliminating debt completely 

If you’re looking for the right debt consolidation solution, there are certain steps you should follow to ensure the legitimacy of the company you’re dealing with.

Choosing the Right Debt Consolidation Company

Consumers looking for a debt consolidation company should properly research all avenues before settling on a solution.

Here are some key attributes you should look for when choosing a debt consolidation company.

  • Better Business Bureau (BBB) rating: look for an A+ rating to ensure companies are operating in a trustworthy manner using proper business practices
  • Length of time in business: businesses with 10+ years of experience and a track record of success
  • Recognition from major organizations: reputable debt consolidation companies are registered with industry associations such as the Nationwide Multi-state Licensing System (NMLS), the American Fair Credit Counsel (AFCC), or the Inc. 5000
  • Positive consumer reviews: companies with a proven track record are more likely to be honest, trustworthy, well-established businesses. Make sure prior customers have had positive experiences 

Choosing a company with the appropriate experience and know-how is critical to improving your financial situation. That’s where Debthunch comes in.

At Debthunch, we’ll quickly analyze your application and provide you with the best debt consolidation services. We match you with the smartest solutions to provide the greatest savings and fastest debt payoffs possible. 

As a family owned establishment with over 15 years of experience in consumer finance, Debthunch is an accredited business that proudly holds an A+ rating with the Better Business Bureau (BBB), and has been named on the prestigious Inc. 5000 list as one of the fastest growing privately held companies.

Stop making minimum monthly payments that will take years to payoff. Get on the right track and let Debthunch be the solution to your financial freedom today.

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