Avoid a Debt Settlement Scam

Frauds and scams are increasing at an alarming rate in the financial sector today. When your finances are in disrepair, it’s easier to fall victim to scams that target people who want to restore your debt to a manageable level.


There are several firms to help you settle your debts. However, in some cases, these companies turn out to be frauds. As a result, it is crucial that you make an educated decision to make sure the company you choose provides you with ethical services. Many companies advertise themselves, claiming to be non-profit; but do not get mislead by that tag, as it can be deceiving, as well.

How Debt Settlement Companies Work

Debt settlement is a process where you negotiate with your creditors to pay off (or settle) all of your credit card bills at a reduced amount, often at a savings of 40 to 60% from your original balance.

The settlement company will generally require you to sign a limited power of attorney, so they can negotiate the debts on your behalf. You will then need to set aside money to build up a settlement fund. Once you have saved enough money to make a reasonable settlement offer, the debt negotiator will negotiate with the creditor for a reduced payoff amount. This amount is typically between 25% and 50% of the outstanding balance.

Once the creditor agrees to the settlement amount, you make payment until the account is paid off. You then continue putting money into the settlement fund to accrue enough money for negotiating the next settlement. Basically, the process is a cycle of saving up and setting aside money, negotiating a settlement and paying the settlement until all of your accounts and settled and paid off.

Steps to Avoid a Debt Settlement Scam

Debt settlement scams are commonplace today. Here are a few tips to make sure the company you choose is a legitimate company to help you settle your debts.

• Ask for references. Check references on any potential debt settlement company. By talking with previous clients, you can help determine if the company is legitimate or not and if they have your best interests at heart.

• Read all the fine print. Often, the details will contain the questionable elements of a debt settlement scam. Read everything to make sure you fully understand the program before you sign anything.


• Ask lots of questions. In an effort to fully understand how the company works, ask a lot of questions. If a company does not want to reveal all of the answers, it is best to stay away from that particular company.


• Check with the Better Business Bureau. The BBB strives to keep consumers safe from fraudulent business practices. Check with them to make sure you go with a legitimate debt settlement business.


• Remember the old saying: “If it’s too good to be true, it probably is.” This ancient piece of advice holds true throughout the generations. Remember a company is always seeking a profit. That’s the point of business, isn’t it? If someone tries to convey a practice that does not benefit them in some way, they are likely trying to trick you. It’s best to stick with companies that appear legitimate.


Debt Settlement Scam Example

To fully understand how complex and deceiving a debt settlement scam can be, here is an example of a common scam in action:

A company claims that they can make your debt go away overnight. They then ask you to pay high fees, perhaps $3000 to $5000, or higher, depending on the size of your debt. This fee is for their "services" and after you pay them, they will do nothing but offer you advice to “not to pay your bills.” They claim this is the right way to go. They always have convincing explanations about the federal law and they appear to know everything about legal matters. They are, however, deceiving you.

The end result of this scam is your debts will continue to accrue until the creditors sue you and you have no option but to hire an attorney to defend you. You will have a legal battle with your creditors while the company who promised you to clean-up your debts has disappeared with your $3000 to $5000 fee.

To avoid a debt settlement scam, the first step is to completely understand what a debt settlement is and how it works. Then, it is wise to make sure that you stick with a company you have researched and find to be a legitimate means to settle your financial situation.

Understanding Deflation

The term “inflation” is something that we commonly hear in the news. We often hear of the woes it creates. But did you know that there is something that is actually worse than inflation? “Deflation” is not something we frequently hear about but it is something we should all be concerned with, particularly if we are in the market for a new house.

What is Deflation?

Deflation is a decrease in the general price level of goods and services over time. In fact, deflation is the opposite of inflation. When the inflation rate is negative, the economy is experiencing a deflationary period. Deflation often has the side effect of increasing unemployment and other economic woes in an economy, since the process often leads to a lower level of demand in the economy.

What Causes Deflation?

While the concept of deflation can seem rather complicated, when broken down, deflation occurs as a direct result of one or more of the following four factors:

• The supply of money goes down
• The supply of other goods goes up
• Demand for money goes up
• Demand for other goods goes down

Deflation usually occurs when the supply of goods rises faster than the supply of money. This is consistent with these four factors mentioned above. These factors clarify why the price of some goods increase over time while others decline.

Deflation is a result of complex economic forces. Ultimately, deflation is a result of the reduction in the supply of money or credit. It is can also be caused by direct contractions in spending, either in the form of a reduction in government spending, personal spending, or investment spending.

Why Deflation is Worse Than Inflation

Since deflation is partly triggered by prices decreasing due to a lack of demand, it might initially seem like a good thing. However, when the price of everything falls it can harm everybody and the economy as a whole.

Falling prices means lower revenue and profit margins for companies. This leads to layoffs, less hiring, stagnant wages, and outright pay cuts. The consumers with lower incomes have less money to spend. This starts a vicious cycle of: sales being down and cutting prices to get more business. Once this occurs, everybody realizes that prices are falling and nobody wants to buy something today if it will be cheaper tomorrow. As a result, they stop spending even more. Thus, a vicious cycle becomes even worse.

Inflation, in moderation, is a natural part of a healthy economy. It can actually ease the burden of debt over time because the real value of fixed debt goes down. Deflation wreaks havoc with this normal economic cycle and causes even more problems. It’s almost as if the cycle of supply and demand goes in reverse.

The complexity of dangers deflation presents run deep. One risk comes from a rush to keep interest rates low to increase consumer spending. Initially this might seem like a foolproof method to curb deflation. However, this creates even more problems.

One such problem is called “hyperinflation.” The danger of hyperinflation lies in a dramatic increase in the velocity of money due to a loss of confidence. In this case, money increases in value so rapidly that the currency actually loses its value. This problem would usher in new and even possibly worse problems than the deflation that triggered it.

What Deflation Does to Mortgages

Deflation can have a negative impact on your mortgage. It can actually increase the burden of your mortgage debt over time. In the normal life span of a mortgage, inflation will progressively reduce the real value of your mortgage interest payments. High inflation thus makes a mortgage more attractive. Over time, it increases the disposable income of mortgage owners.

However, with deflation, your mortgage payment becomes a larger percentage of your disposable income. Debt becomes an increasing burden, reducing spending and economic growth.

Economic problems can vary greatly and create more complex problems over time. Deflation, the opposite of inflation, creates an economic condition that devalues money over time. It can be a tricky event to reverse as other problems like hyperinflation threaten to have a strong backlash that creates even worse problems.

These economic conditions can all have a direct impact on your mortgage. By staying on top of current economic trends, you will be in a much position to understand how the current economy is directly impacting you and your mortgage.