Debt Consolidation Scams: The Mortgage Brokers New Gig

Theoretically, debt consolidation sounds ideal if your debts are way above your head. Why not? Imagine bundling all your loans and debts under one loan with a lower interest rate; for anyone who can no longer breathe because of debt, this idea is certainly enticing!

In a perfect world, we would all venture down to our local debt professional to handle all our credit woes. These so-called professionals would be doing their jobs, operating from the hearts, instead of their pocket books or evil plots. Unfortunately, we don’t live in that world now folks and a trip to the local broker may end up turning into a non-violent robbery. But a robbery none the less.

The facts are that many mortgage brokers have went from selling you an unaffordable home loan a few years back, then they came in over the past couple years offering you to fix it via an illegal and hefty fee. That business ended up becoming illegal and many got busted, sued or sent to prison. Now, with desperation reaching critical  they have officially got off the loan modification gravy train and have entered the debt consolidation business BIG TIME.

When I say BIG TIME, I mean BIG TIME and consumers should be on super high alert!

Just this past week I did my own independent investigation into this new illegal debt trend. What I found did not shock me, but confirmed my sources that most ALL illegal loan modification companies that had escaped the Attorney General, DRE and FTC have now morphed into debt consolidation chop shops.

With that said, as with any legitimate offer in life, there are legit services where you can get meaningful and no cost help. In the same token, there are just as many scammers who will take whatever money you have left and not do a darn thing to help your situation. If we learned anything during this mortgage, foreclosure and debt crisis is that as consumers, we should not trust everything we hear. We all must understand that in order to avoid being scammed, we will have to do some serious due diligence before we do business with anyone.

So, when seeking debt assistance, your internal fraud guard needs to be on high alert.

Here are some great tips straight from the Federal Trade Commission (FTC) on choosing a legitimate service provider:

Credit Counseling and Debt Management Plans

Credit Counseling: If you’re not disciplined enough to create a workable budget and stick to it, can’t work out a repayment plan with your creditors, or can’t keep track of mounting bills, consider contacting a credit counseling organization. Many credit counseling organizations are nonprofit and work with you to solve your financial problems. But be aware that, just because an organization says it’s “nonprofit,” there’s no guarantee that its services are free, affordable, or even legitimate. In fact, some credit counseling organizations charge high fees, which may be hidden, or urge consumers to make “voluntary” contributions that can cause more debt.

Most credit counselors offer services through local offices, the Internet, or on the telephone. If possible, find an organization that offers in-person counseling. Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate nonprofit credit counseling programs. Your financial institution, local consumer protection agency, and friends and family also may be good sources of information and referrals.

How convenient would it be for anyone swimming in debt if they could just have a new loan to settle all their existing loans?

This alone is enough for different debt consolidation companies to prey upon this idea and take advantage of the debtors. Well, no matter how nice their agents are or professional their websites look, there are a lot of them that are unreliable and dodgy, and will only end up asking you more money. 

Many debt consolidators often hide using their nonprofit status and charge their hopeful clients with hidden fees claiming they are just voluntary contributions. Please beware of that trick and read everything before you sign or send any money to anyone.

Rather than taking their clients’ payments and paying off their lenders as promised, these scoundrels keep the initial payments as fees without the knowledge of their clients. Meanwhile, the clients who had trusted them to the debt consolidation job unknowingly and inevitably fall behind their payments, which can eventually be very damaging to their credit score. 

Reputable debt consolidators make money not through hidden fees and charges, but through 10% to 15% commission from the creditors.

This only means that for every $100 paid to the creditors, debt consolidators get $10 to $15 as profit. Keep this in mind – any company that charges you fees may not have the best intention to help you, rather they have the best intention to gain from you and because you keep on paying charges, you may need more help in the future, making the objective of debt consolidation useless. 

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