In today’s tight economy, an increasing number of consumers are struggling with mounting credit card debt, impossible interest rate increases, and tightened credit terms. In times like this, offers from debt management companies proposing to negotiate with credit card companies to either reduce your debt or get you debt-free have undeniable appeal.
However, as is often the case, when something sounds too good to be true, it’s because it is. Consumers in Illinois learned this the hard way recently, when they were targeted by a new debt management scam promising to help them to reduce their credit card interest rates. Consumers were contacted by telemarketers, offering to negotiate with their credit card companies to lower their interest rates, and guaranteeing a savings of $2,500. They were also offered full refunds of fees should the company fail to deliver as promised.
Sounds like a pretty good deal, right? Unfortunately, after consumers enrolled in the program, the companies involved began to play a different tune. The telemarketing companies reportedly charged from $391 to $1,590 in fees to consumers’ credit cards for their services. When they failed to follow through on their promises to lower interest rates, consumers requesting a refund were either completely refused or given a refund minus a non-refundable $199, which was not disclosed in the sales solicitation. In fact, consumers enrolling in the program did not receive a disclosure of the terms and conditions of the programs until after they had enrolled in the new program.
The Attorney General of Illinois, Lisa Madigan, recently filed suit targeting the two main companies involved in the scheme, Texas-based Priority Direct Marketing International, Inc. (PDMI), and Advanced Management Services located in Spokane, Wash.
For cardholders in general, the telemarketing scam is a reminder to be wary of debt management services, which promise you the world. Unfortunately, these types of scams often veil that fact that there are legitimate financial assistance services out there, which will provide you with useful credit counseling services for a reasonable fee.
What can you do to protect yourself? Be suspicious of anyone making big promises of large or immediate savings; they are likely to be scams created by fly-by-night companies out to make a quick buck by preying on unsuspecting consumers. A sure sign that you’re dealing with a scam is if the company requires you to pay a hefty fee upfront and doesn’t provide you with written material clearly outlining the terms of their service before you sign up.
Even more basically, a debt management program involving a debt settlement may not be your best option. Even if a company successfully negotiates a debt settlement for you, which reduces the amount of debt that you have to pay off, it may cause more harm than good. A debt settlement will stay on your credit report for seven years, badly hurting your credit score. Depending on your specific financial circumstances, this could well limit your options more going forward, than if you simply had made plans to pay the debt off in full.
If you are struggling with high-interest credit card debt, sometimes you can be successfully lower your rate by calling your credit card issuer and negotiate a lower rate. and want to learn more about what your best course of action will be, the website of the non-profit National Foundation for Credit Counseling offers many useful educational resources along with referrals to reputable credit counseling agencies in your area.
