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Rule #4: Avoid Scams and Other Rip-Offs Preying on Those in Debt

Many banks, creditors, and scam artists target those in financial difficulty for some of the worst abuses. Scammers seek out desperate consumers and look for ways to take advantage of them, assuming they will make bad financial decisions. Chapter 7 describes scams to avoid, including:

  • ● Debt elimination scams promise for a fee to eliminate your debts completely—these are all bogus.
  • ● Debt settlement agencies charge high fees and rarely help you settle your debts with your creditors.
  • ● Foreclosure rescue scams offer to save your house but end up stealing it.
  • ● Reverse mortgages that do not meet federal “HECM” standards can get you into big trouble.
  • ● Credit repair agencies charge to clean up your credit record, but you can do it better yourself for free.
  • ● Small loans such as payday, auto title, and installment loans have extraordinarily high interest rates. Walk away from any loan with a disclosed annual percentage rate (APR) more than 36%. Also watch out for loans that add charges for insurance. Auto title loans also put your car at risk.
  • ● Refinancing or consolidation loans can put you further in debt, increasing the chances you will lose your home. You also lose rights if you consolidate federal student loans into private student loans.
  • ● Student loan debt relief scams charge high fees to allegedly help with your student loans—help is available for free from your servicer or the U.S. Department of Education.
  • ● Rent-to-own sales of appliances, furniture, and electronics have effective interest rates over 100%.
  • ● Auto brokers offer to lease your car to someone else but may make matters worse for you.
  • ● Subprime credit cards, with hidden fees and charges, end up being extraordinarily expensive.
  • ● Using “overdraft protection” at your bank amounts to an astonishingly expensive short-term loan.