Denver, CO – June 5, 2012 – According to the Federal Reserve, the total debt of U.S. consumers is $2.5 trillion, as of December 2011. Common sources of debt are mortgages, loans, credit cards, and medical bills. With so many consumers having some level of debt, credit repair and debt relief schemes are widespread.
While there are legitimate ways to get debt under control, the Better Business Bureau (BBB) warns of firms and scammers who are only out to take advantage of a desperate situation. “Unfortunately, consumers often pay a lot of money in advance fees, but receive little or no assistance and end up even deeper in debt,” said Dale Mingilton, president and CEO of the BBB Serving Denver/Boulder. The BBB has several reviews on companies that offer debt relief and credit repair, many of which have low BBB ratings or have gone out of business.
According to the Federal Trade Commission (FTC), debt relief and credit repair companies cannot charge upfront fees. The company can only take payments once services have been rendered, as promised. Being asked for any financial information or to pay fee before any work is done is a red flag, according to the BBB. In addition, the BBB also says to be wary of any company that:
- Uses a generic name to make it difficult for consumers to research them; or refuses to provide basic information on its location, length of time in business, affiliated companies, etc.
- Advises against staying in contact with creditors, lenders, or the three major credit reporting agencies directly.
- Embellishes its "success rate," without proof; and claims you can dispel all negative credit information from your credit report, regardless of its accuracy.
More tips from the BBB:
- Beware of offers that sound too good to be true. Remember, debt doesn't disappear overnight, so be cautious of companies making inflated or unsubstantiated claims and guarantees.
- Try a credit counseling service first. Most credit counseling agencies are nonprofits that offer financial guidance for a small fee or for free. When searching, see if they're registered with the National Foundation of Credit Counseling (NFCC) or the Association of Independent Consumer Credit Counseling Agencies (AICCA).
- Verify legitimacy of unknown debt calls. Ask debt collectors to provide official documentation to substantiate debt. If contacted unexpectedly by a debt collector or debt help company, do not provide or confirm any bank account, credit card or other personal information over the phone until confirming the legitimacy of the call.
- Understand debt help terms. Those who receive solicitations for debt help should understand the differences between debt consolidation, debt negotiation and debt elimination offers. Although some offers are legitimate; offers concerning debt "elimination" are almost always scams.
- Don't rely on the "middle-man." Beware of referral service companies that promise to connect you to a credit repair specialist for an upfront fee. Instead, personally contact lenders or financial institutions to discuss options.
- Stay in contact with lenders. If having trouble with payments, try to work out a plan with lenders first before enlisting outside help. Even if you gain third-party debt help, stay in touch with lenders.
- Research debt help companies. Before getting assistance, get a free BBB Reliability Report on the company a www.bbb.org. Get details on services and fees in writing. Understand plans and if they will negatively or positively affect credit scores. Check for proper licensing with state agencies.
- Get all details in writing. Don't rely on verbal promises. Understand exactly what services will be provided. Know what the fees and interest rates are.
- Utilize the BBB's Managing Credit – Made Simpler. This free online program walks consumers through steps to better manage their credit, regardless of their financial situations. Visit www.bbb.org/credit-management.
Know Your Rights, Get the Facts:
- Through the Fair Credit Reporting Act (FCRA), consumers are entitled to a free credit report every 12 months and have the right to dispute inaccuracies on their own. Click here for more information.
- Avoid companies that don't explain your rights. Under the Credit Repair Organizations Act (CROA), credit repair companies should supply a copy of the "Consumer Credit File Rights Under State and Federal Law" before a contract.
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About the BBB
The BBB is an unbiased nonprofit organization that sets and upholds high standards for fair and honest business behavior. Businesses that earn BBB Accreditation contractually agree and adhere to the organization’s high standards of ethical business behavior. The BBB provides objective advice, BBB Business Reviews , BBB Charity Reports and educational information on topics affecting marketplace trust. To further promote trust, your BBB also offers dispute resolution services for consumers and businesses. The first BBB was founded in 1912. Today, over 100 BBBs serve communities across the U.S. and Canada. Please visit www.denver.bbb.org for more information.