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Friday, January 17, 2014

Insight about debt relief program scams vs. legitimate options

Avoid Credit Card Hardship Program Scams
Be wary of fees prior to the completion of the mortgage modification
By Paul Paquin

What debt relief programs are legitimate in the United States as of 2014? Consumers have been scammed over and over again, so how can a person find safe debt relief help? The following tips will point consumers in the right direction and help them to avoid getting ripped off.

1. Debt settlement services

How does it work?

For more than a decade debt settlement has helped millions of consumers in America. A debt settlement program is where professional negotiators work with your creditors to settle your debt for less than the total owed. A person's accounts must be sent to a third-party collection agency before they can be settled.  Therefore they must fall behind on their accounts before they can be settled.

This can negatively affect a person's credit score, but in the end they can always rebuild their credit score, once they are debt free. This program can be the fastest route to paying off unsecured debt.

It is important to join with a reputable company that won't just charge you fees, and then not settle your debt.

How to protect yourself from getting scammed?

The best way to get reputable debt settlement help is to go to the Better Business Bureau (BBB) website. There you can look up debt settlement companies. They key is to find an “A” rated company. Then from there look at their complaints and make sure there are zero unresolved complaints. 

Lastly check how long the company has been in business.  Do not join with a company that has less than a five-year track record.  If a debt settlement company has more than a five-year track record, no unresolved customer complaints and an "A" rating with the BBB then you can be confident that they are a trustworthy company.

 2. Consumer credit counseling

Consumer credit counseling has been around for over 2 decades now. Certified credit counselors will negotiate with the credit card companies and work to lower a person's interest rates. A person does not have to fall behind on their credit card accounts for this program to work.

A person will pay back the full amount that they owe, but less interest with consumer credit counseling. This allows them to get out of debt in around 5 years on average. Since a person doesn’t have to fall behind on their accounts, this type of debt relief program will not have as much of a negative effect on their credit score as debt settlement.

How to protect yourself from getting scammed?

The best way to protect yourself from consumer credit counseling scams is to check that the company is non-profit. Non-profit consumer credit counseling companies are 100% safe to work with because of the fact that non-profit companies are strictly regulated. Also it is important for a consumer credit counseling company to have a membership with the Association of Independent Consumer Credit Counseling Agencies (AICCCA).

 3.  Mortgage debt relief or loan modification

Loan modification companies offer a service that modifies a person’s mortgage payment.  Sometimes a person can have their interest rate and even principle lowered. A person must have a hardship and be behind on their mortgage payment to be eligible for a loan modification.

 “As of October (2013), more than 1.2 million homeowners have received a permanent modification through HAMP, saving approximately $547 on their mortgage payments each month- a nearly 40 percent savings from their previous payment— saving a total estimated $23.5 billion in monthly mortgage payments. In October, 69 percent of eligible non-GSE mortgages benefitted from principal reduction with their HAMP modification. Homeowners currently in HAMP permanent modifications with some form of principal reduction have been granted an estimated $12.4 billion in principal reduction.” Source

How to watch out for loan modification scams?

Like with debt settlement check at the BBB website to find a company that has a good rating and long-history. Additionally, do not join with a loan modification company that wants to charge you a fee before your loan is modified.

In the past loan modification companies have ripped off hundreds and thousands of consumers by charging high upfront fees and then not performing.  It is against the law for a company to charge for this service until they actually modify the consumer’s mortgage.  Run in the opposite direction if a loan modification company tells you that there is an up-front fee that must be paid before your loan gets modified.  

About the author: Paul Paquin is the owner of Golden Financial Services, a nationwide debt relief company.

Images: Author owned and licensed