5 Ways to Avoid Debt Consolidation Scams

Many times small businesses and startups are so frantic about getting out of debt that they believe that any company can come to their relief. Consequently, these business owners turn to debt consolidation companies that combine several startup loans or liabilities into one loan in a bid to end their financial woes.

However, not only do some debt-relief companies make fake promises, but also present high-price plans, often thousands of dollars, making you sink deeper into debts without a feasible solution. In fact, every year the Federal Trade Commission (FTC) announces millions of dollars in settlement with lenders it accuses of defrauding individuals and businesses by making false promises.

Just this year in April, FTC announced a settlement with online lender Avant over a lawsuit alleging the firm lied to customers and misled them. Avant agreed to settle for $3.85 million after it agreed it had engaged in deceptive and unfair loan servicing practices which harm thousands of consumers.

Now, this information is scary, but it not an isolated case. If you own a startup business and are looking for debt consolidation or settlement, then you should tread very carefully when trying to secure any type of loan and this debt service to avoid being swindled.


Beware of Debt Consolidation Scams


If you do not have much knowledge about debt consolidation scams, it is important to note that American and Canadian companies cannot call you officially, give you a loan, and then ask for an advance payment before the completion of the transaction.

It is true that debt consolidation, a form of debt refinancing, is a sensible solution for startups overwhelmed by debt. But some companies lending you money may be scammers. These scammers operate from both inside and outside of the country to rip startups off financially.

Like most other types of scams, debt consolidation scams target people who are unaware of how the debt consolidation process works. That’s why you need to educate yourself more on how this service works and how to identify the bogus credit-related services.


Key Ways to Identify a Debt Consolidation Scum


Here are five main ways you can identify debt consolidation scums to avoid such frauds:


1. Fake Pitch


When it comes to swindlers, they make promises that sound too good to be true. For example, a debt-relief company in the US may pitch by saying that their program will completely resolve a customer’s debt-related issues, be it a credit card loan or other unsecured debts.

Such scammers often promise that they will help in getting you a loan at low monthly payments and interest rates, once it takes into account all charges.

Now, you can easily identify exaggerated statements, because a legit debt consolidation will provide candid and informative details to help you become debt-free at reasonable payment terms and conditions. Thus, opt for consolidation loans from companies with proven experience and exemplary customer service.

If any company uses words like ‘superfast’ and ‘comfortable debt consolidation,’ you have reason to doubt. The process of paying off your multiple business loans is oftentimes challenging unless you have some good money to pay your creditors. If anyone tells you otherwise, that’s a red flag. Do not believe a lie.


2. Upfront Payment


Even if you have many small loans and want to consolidate them into a single one, no professional lending agency will ask for a huge, upfront payment.

Scammers will give you all kinds of reasons to pay significant sums of money up front, like credit check fees, administration charges, processing costs, and the like. Whatever excuse they provide, do not believe them. It’s how they lure people to defraud them.

An honest lender, however, will ask only for monthly payment and interest only after you sign the agreement. A 2010 FTC amended Telemarketing Sales Rule actually prohibits for-profit companies that sell these services over the telephone from charging a fee before they actually settle or reduce a consumer's debt.

It is true that some legitimate companies may have an origination fee, but the amount is often small and insignificant. Moreover, you will only need to shell out such fee only after your business is funded. So, if any lender or loan official pesters you for upfront money, it’s a red alert. Start looking for another lender.


3. Misleading Customers


Fraudsters or scammers have devious ways to swindle business owners. They make misleading statements to confuse their customers.

First, you are asked to put cash into their account. They will tell you that they need this money to negotiate with their creditors for easy payment terms and conditions.

Second, the scammers assure you that they’re working on your behalf. You must identify this red flag immediately.

If you feel suspicious of anything, get in touch with your creditors to verify whether they are working with the debt consolidation agency you have hired. If not, fire the scammer.


4. Wiping Your Poor Credit Score Overnight


Your credit score is one of the most crucial aspects when you apply for a consolidated loan for your startup. The unscrupulous fraudsters will promise to erase your bad credit score overnight. They may even claim to increase your score many times in a day or two.

Usually, these scams exist in business as well as personal credit repair. If you have just started your startup business, you become more vulnerable to such schemes. Do you know why? Because newbie startup owners do not have extensive commercial credit to their advantage. And these scammers cash in on this aspect.

Though you will find some genuine credit repair agencies, their services do not help business owners much. You can repair your poor score yourself without paying a dime. Paying your bills on time and making periodic loan payments are some of the ways to improve your credit report.

Therefore, do not fall into the trap when scammers claim that they can improve your score overnight.


5. Asserting that Obtaining a Loan is Impossible


A few online providers claim that obtaining a debt consolidation loan is next to impossible. They say it is not easy, it’s very complicated. And that you should shell out a considerable sum of money to get these loans that help you become debt-free.

All that is nothing but a lie, and therefore do not buy it.

Sometimes, fraudsters may also lure you with tricks or tips to sign the loan application. They might even promise you to offer special state grants, or help you become eligible for a low-interest loan.

If you are looking for a debt consolidation loan for your business, all information is available free online. You will find such details from verified loan providers, lenders, and loan brokers. Therefore, stay away from scammers who ask you for money in return for loan-related information.


Debt consolidation may seem intimidating and scams are common, but if you are cautious throughout, you can find legitimate lenders online that help you ease your startup repayment obligations. Use this guide to learn whom you can trust and whom you cannot, and avoid scammers.

Marina Thomas is a marketing and communication expert. She also serves as a content developer with many years of experience. She helps clients in long-term wealth plans. She has previously covered an extensive range of topics in her posts, including Money Saving, Budgeting, Cryptocurrency, Business debt consolidation, Business, and Start-ups.