Personal finance scams continue to work because they victimize well-meaning people who are trying to get their lives back on track. Unscrupulous scams pose as “solutions” for consumers looking for a way to get out of debt — but they actually can set consumers back even farther, jeopardizing their finances even more.
Consumers, beware! The popular saying “desperate times call for desperate measures” does not apply to debt relief. Rushing into any solution that seems too good to be true is a surefire recipe for disaster. Rather, it’s important to research every decision you make thoroughly, ask questions and avoid scammers looking to take your hard-earned money under the guise of “helping” you out of debt.
Here are four scams to avoid — and some better alternatives to explore on your quest toward becoming debt free.
Advance Payday Loans.
If you get paid every two weeks or one per month, you’re probably all too familiar with this pattern: Immediately after payday, you’re able to pay bills, buy food, etc. with ease. But as payday recedes like a scene in your rearview mirror, money gets tighter. Soon you’re looking ahead to the next payday longingly. In the meantime, however, bills and living expenses don’t stop.
Sometimes this cycle drives people to seek out quick cash in the form of a payday loan. But these loans tend to carry staggeringly high interest rates — sometimes upwards of 390 percent, according to the Federal Trade Commission. They are also generally due the following payday, leaving consumers a very brief window of time in which to come up with repayment.
Needless to say, these high-interest loans can leave consumers in a worse position. A better alternative may be asking your employer for a payroll advance with better repayment terms. Or, you can explore debt consolidation, which involves taking out a personal loan with fixed repayment terms to pay off riskier debts in the short term.
Debt Relief Scams.
Any time an individual or organization “guarantees” they can reduce or eliminate your debt, there’s a very high chance it’s a red flag signaling a debt relief scam. Ditto goes for any company that collects fees up front before even settling your debts.
Legitimate debt settlement is a viable option for consumers who find themselves in thousands upon thousands of dollars in debt with no clear way out. This strategy requires program enrollees — after conducting researching and deciding a certain program is a good fit — to deposit money regularly into a special account until they’ve saved up a certain amount of money. Then negotiators contact creditors, trying to reach a settlement that’s lower than the original balance. Since creditors are at risk of getting no payment, they’re often willing to accept a lower payment as long as it’s timely. The money from the special account then goes toward paying off the balance.
Reputable debt relief partners will never make promises up front, nor gloss over the specifics of their program to fool vulnerable customers into signing up. Luckily, the internet makes it easier than ever to evaluate debt relief programs before even picking up the phone. Take careful note of other consumers’ experiences. There’s plenty of information available on industry leaders (such as Freedom Financial Network) for those willing to take the time to search for Freedom Debt Relief reviews and similar terms.
Student Loan Scams.
Fraudsters may try to trick consumers with student loans into participating in bogus “forgiveness” programs. However, the U.S. Department of Education warns that it will never use “aggressive advertising to lure borrowers.”
Here’s what to avoid:
- Anyone promising total loan forgiveness or cancellation.
- Anyone asking for up-front fees for services.
- Anyone asking for your FSA ID password.
- Anyone claiming their offer is limited time or urgent.
- Anyone with grammatical errors in their message.
Knowing which personal finance scams to avoid will help you make smarter overall money management decisions.
