How To Avoid Debt Consolidations Scams
Debt is one of the most commonly reported causes of stress amongst Americans. Many people cite their debt issues as one of the main contributing forces that lessen their overall quality of life. Because of this, people who have large debt balances are often targeted by untrustworthy debt consolidation companies promising the moon and the stars.
They often promise individuals a solution to their debt problems that are far beyond what is available. These unsuspecting individuals, desperate for some debt solution, are often left in a worse position than they were before. For this reason, everyone must understand what kind of debt consolidation scams are out there and how best to avoid them.
Keep reading to discover the common scams before exploring three reputable online lenders that individuals can depend on for debt consolidation purposes.
Types Of Debt Consolidation Scams
- Being Asked To Make A Payment Before Anything Has Happened: This is perhaps the most common scam. The supposed lender will promise the borrower a consolidation loan at a strikingly low interest rate and long payback term. Once they think they have the borrower convinced, they will ask for the first payment upfront. Should the borrower make the payment, they will likely never hear from the fake lender again
- Unrealistic Promises: Debt consolidation does not lower a borrower’s overall amount of debt. It simply reduces the interest rate and combines all debt into a single monthly payment. The companies that promise to drastically reduce one’s debt are almost always lying. They do this to collect a payment from the borrower, never to be heard from again
- Fake Loan: Depending on the type of loan, debt consolidation companies will sometimes pay off creditors directly before leaving the borrower to pay them back for this consolidation. While there is nothing nefarious about this set up in and of itself, some scammers will claim to be paying off an individual's creditors while asking the borrower to pay origination fees along with the first installment upfront
What You Should Know Before Taking Out A Loan
- Do Your Research: Any reputable lender will have no shortage of reviews from past clients. If a lender has no reviews, or worse, reviews stating that the company is an outright scam, stay well clear
- Are They Accredited?: All lenders must be accredited by the Federal Trade Commission (FTC). While a scam lender could still get accreditation in some cases, seeking out a properly accredited lender should be the first step
- Get Everything In Writing: A loan is a contractual agreement, and as such will come with its fair share of legal paperwork. Any lender which claims to have paid off one’s creditors without providing the lender with the appropriate paperwork is almost surely a scam. It is worth noting that the level of sophistication with some scammers has grown over the years, and many provide their victims with false, yet professional looking paperwork
Read More: Debt consolidation hacks
Watch Out For These Fees
The line between fraud and predatory behavior can be very thin in some cases. Many lenders operate within the legal boundaries but still seek to take advantage of individuals struggling with debt. They often do this by charging high fees that may not have been properly communicated to the borrower, the most common of which are listed below:
- Portion Of Total Debt: Some lenders will try to charge the borrower a portion of their total debt upfront, sometimes as much as 18%
- Large Origination Fees: Normally, most lenders will charge 1 -2% of the loans' total value in origination fees and is not a cause for concern. If a lender tries to charge upwards of 5% of the loan value in origination fees it is time to seek out a different lender
- Voluntary Fees: The FTC warns consumers against lenders which attempt to charge borrowers voluntary fees. These are essentially monthly account fees that are not standard practice, but which lenders sneakily try to get the borrower to agree to
Trusted Debt Consolidation Online Lenders
- Discover: One of the premier lenders of consolidation loans, Discover provides consolidation opportunities that helps borrowers with a credit score of 700 or above qualify for some of the best rates and flexible payment terms
- SoFi: Another trusted online lender, SoFi offers competitive interest rates and low fees. This lender is highly rated by consumers and has a very strong reputation
- Upgrade: This lender is willing to work with individuals with credit scores as low as 580. Upgrade also offers quality support through their online application and customer representatives