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Avoiding scams while addressing unmanageable debt

A great many California residents are burdened with heavy debt loads and many are ready to look for relief. Deciding how to approach unmanageable debt can be tricky, and consumers will often try several different options before finding a solution that works for their particular set of needs. For some, debt settlement is an option that holds appeal. When considering this approach, however, consumers should be aware that the debt settlement field is rife with scams.

An example is found in the recent injunction against World Law Group, a company offering debt settlement and other financial services. According to the Consumer FInance Protection Bureau, the company broke the law by charging clients up-front fees prior to providing services. Specifically, World Law Group clients were asked to pay a $199 "enrollment fee" before the debt settlement actions began. Once the process was started in this manner, clients paid a monthly fee of $84.95.

Clients sent money to World Law Group, which was then held in escrow until a sufficient amount had amassed to pay down one or more accounts. At that point, the company would contact creditors and negotiate a settlement, often for substantially less than the amount owed. Once the agreed-upon payment was received, the creditor would forgive the remaining debt.

Debt settlement works for some consumers, but there are a number of pitfalls that make this approach risky. For one, consumers can fall victim to scams, and can simply waste money spent on fraudulent debt relief programs. In addition, if the terms of the settlement plan are not strictly adhered to, the creditor can back out of the agreement, leaving the consumer to pay the full amount owed. Factor in the high fees charged by many settlement companies, and it becomes easy to see why so many California residents choose a different approach to unmanageable debt.

Source: thestreet.com, "Buried in Debt? Here's How to Protect Yourself Against Deceptive Debt Relief Programs", Kevin Yu, Sept. 16, 2015

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