Consumer Advisory Bulletin- March 2013
Debt Relief Scams: More Headache than Relief
Got debt? If you’re making payments on a mortgage, a car, an education or credit card bills, you’re in good company. While manageable debt doesn’t keep most people up at night, getting behind on monthly bills and mounting debt can be overwhelming.
But, when advertisements or telemarketers claim there are easy fixes that will result in smaller payments and lower debt, don’t believe them! Debt relief can be complicated, in certain cases can’t happen without you declaring bankruptcy, and the consequences can impact your credit rating and your finances for many years.
If you’re behind on your bills, start a conversation with your creditors before you talk to anyone offering debt relief. Ask if you can work out a payment plan. If the answer is no or you can’t seem to reach an agreeable payment plan, call an expert for help.
Non-profit credit counseling services will seek reasonable solutions based on your circumstances. Credit counseling services have trained counselors who work on your behalf with creditors. These non-profit agencies may charge small fees, but will charge much less than for-profit debt relief companies. You can find National Foundation for Credit Counseling local member agencies at www.nfcc.org, or call 1-800-388-2227.
For-profit debt relief companies may claim that there are simple solutions for everyone, and often charge pricey advance and hidden fees that don’t go toward reducing your debt. Those fees can include initial fees, monthly service fees, and a closing fee. Some firms may do little or nothing but collect fees. (For-profit debt relief companies that sell their services over the telephone may no longer charge a fee before they settle or reduce a consumer’s credit card or other unsecured debt, but this federal rule does not apply to debt relief agreements made through the Internet or in-person.)
When contacting anyone who provides debt relief services, ask questions up front before agreeing to any services. Ask about all fees and costs, and request a written copy of the fees they charge. Don’t do business with anyone who tells you to stop communicating with your creditors. It’s not only bad advice—it’s illegal to give that advice.
Stopping payments to creditors can increase your debt amount, can hurt your legal standing, and can negatively affect your long-term financial situation. A debt relief service must explain the consequences of stopping payments to creditors. Those consequences could include losing your home if it’s a mortgage, increased debt because of penalties and interest, significant damage to your credit rating, exposure to debt collectors, and legal trouble.
If you are considering bankruptcy, do so carefully. Bankruptcy, depending on the type, can eliminate unsecured debts and stop foreclosures, repossessions, utility shut-offs, certain debt collections and garnishments. But bankruptcy can also result in unintended and long-term consequences. You should consult with a lawyer to talk about bankruptcy options. You’ll find a basic bankruptcy information sheet at www.justice.gov/ust.
For more information, contact the Attorney General's Consumer Protection Division, 1305 East Walnut, Des Moines, Iowa 50319. Go to www.IowaAttorneyGeneral.gov. Call 515-281-5926, or 888-777-4590 toll-free.