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Tips for avoiding debt consolidation scams

Debt consolidation scams usually look good at first, but they can force you into even greater debt -- perhaps with ballooning interest rates -- over time. They're a way to prey on people who are already having serious financial issues. However, there are ways to avoid them.

First off, the company shouldn't pressure you. Real debt consolidation plans exist and you can ask for information, but, if you feel like you're unsure and they're trying to bully you into it, it may be a scam.

Next, be wary of any guarantees. Debt is different for everyone. Situations are different for everyone. A guarantee that sounds too good to be true usually is.

On top of that, watch out for a company that doesn't really look into your financial situation. A real debt consolidation plan will be tailored to your needs, so they'll really investigate what works best for you. A company that starts making promises without doing so is a red flag.

Finally, work closely with your creditors. Ask them if they'll be happy with the arrangement. Check up to make sure they're getting the right payments. Make sure they've even accepted the plan before you mail out that first check. Even when things look good, you need to keep an eye on the process so that you know where the money is going.

Finally, be sure you look into all of your debt relief options. Chapter 7 bankruptcy allows you to liquidate assets, for instance, while Chapter 13 creates a repayment plan. Always make sure you're well educated on the process and that you pick the option that's best for you.

Source: How Stuff Works, "How Debt Consolidation Works," Jane McGrath, accessed Nov. 09, 2016

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