How to avoid bad credit loan scams and manage debt?

avoid bad credit scams

“Bad Credit, No Credit, No Problem”

 
 

“Get Money Fast”

“No Hassle- Guaranteed”

Do you notice the above words while shopping for a loan? These are likely to be the ringing bells to spot a scam.

Here is the most important advice coming from a government website – you can also call it the rule number one.

Legitimate lenders never “guarantee” a loan.

As soon as you see something that looks too good to be true, you should better avoid it. Getting a loan or a credit card is not so easy, especially when you have bad credit, no credit, or a bankruptcy.

According to Pew Charitable Trusts, 12 million Americans use payday loans annually, spending approximately $7.4 billion at thousands of storefronts and online lenders. Though payday loans are legitimate in many states, borrowers are highly discouraged to take one as they are likely to be trapped in debt.

Even if bad credit loans are legit, they may not be safe for two clear reasons.

  • The lenders may not keep their promises as they claim before the application.
  • The lenders may have intention to fool the borrowers and get away with the money they charge upfront.

In the case of the former, borrowers can try an alternative or check out our list of legitimate bad credit lenders.

In the case of the latter, borrowers must have an eye to spot a scam or fraud, and stay away from the same.

Advance Fee Loan Scam

Advance-Fee loans are often nothing but scams. Here are six signs that help identify an advance-fee loan scam.

  1. The lender is not interested in your credit history
  2. Fees are not disclosed clearly or prominently
  3. The loan is being offered on phone
  4. The lender is not using the real name, but a copy-cat or a wanna-be name
  5. The lender is not registered in your state
  6. The lender asks you to wire money or pay an individual

According to some websites, most fraudulent companies originate from Canada, Caribbean or other countries and do not have a valid address in the United States.

Identity Theft

There is another kind of scam related to identity theft. An online lender might get you to enter personal information on a fraudulent website. Instead of receiving money in your bank account as the lender might claim to offer instantly, you might find your money debited from your account without your explicit approval.

This practice is a violation of law. So, you must identify it, avoid and protect yourself, and report to the concerned authorities. Remember to be extra cautious while providing personal information online or submitting an online application form. Reading the fine print and inculcating a habit to regularly review your bank account and billing statements for unauthorized charges can be some important steps.

What should you do to avoid getting trapped in bad credit loan scams?

The first logical step would be to stay away from anyone that charges upfront fees. Don’t send any money in advance via wire or pay someone in person until you have solid reasons to trust him or her. Check payment is usually safe, but you still need to verify the credentials of the lender.

Next you can do some research to ensure trustworthiness of a lending company. One thing you can do in this regard is to see if the lender is licensed to offer services in your state. Another thing you can do is to verify that the company has a valid physical address. You can even visit the place to make sure you are dealing with the right people.

Finally, you need to read reviews and check ratings online or get feedbacks from previous borrowers. Some websites, such as Better Business Bureau (BBB), offer ratings on finance companies and give insights into how they deal with their customers.

How to report an internet crime or fraud?

Several laws exist to help protect the consumer rights. For example, the ECOA requires that the creditor give you specific reasons why your application is denied if you ask within 60 days of denial.

If the denial is because of the information contained in your credit report or credit score, then the FCRA requires that the creditor provides the details of the credit reporting company that supplied the information.

If the reason of your application’s rejection is maximizing on your credit limits available on your credit cards, then you can reapply after paying down your balances. Other laws related to consumer rights include Truth-in-Lending Act (TILA) and Military Lending Act (MLA).

The Federal Trade Commission (FTC) enforces the laws associated with unfair business practices. When your rights under any of the several consumer credit acts have been violated, you should report the violation to the FTC. There are several ways to report violations, such as online, by phone and by mail.

You can also approach the Internet Crime Complaint Center (IC3) of Federal Bureau of Investigation to report an Internet crime or fraud.

Debt Management

A debt is always a burden. You must get rid of it as soon as possible to stay healthy financially. While your short-term goal should be to avoid the need of more credit your long-term goal must include a well-thought plan to pay off all current debts. Build a debt management plan on your own or seek advice from professionals.

Long-Term Money Management Plan

Be prepared to take some tough decisions as there is no shortcut. Change your lifestyle today to deal your financial issues more responsibly. Here are some outlines that can help you chalk out your own money management plan.

  • Set your goals – when you plan to pay off all your debts, starting from the one that is small and more expensive.
  • Track spending – get to know which expenses you can do away with. Change your lifestyle and financial behavior if necessary.
  • Save – create a separate account and automate savings.
  • Prepare a budget – analyze your monthly income and expenditure, make necessary changes, and build a road map to realize your goals.
  • Borrow wisely – apply for a loan only when you really need it. Ideally, you should refrain from borrowing until your existing debts are cleared.

How to pay loans quickly?

Your short-term goal pay off high-interest bad credit loans. Experts say that you should first tackle either the smallest loan or the loan with the highest interest. Feel the pains and knock down the first loan from your list. The rest will be wiped out more easily.

  • Start by getting an understanding of what you owe. Pull your credit report, negotiate rates with lenders, consolidate debts and use a debt management program.
  • Make a payment plan. List out all outstanding loans and prioritize based on interest and amount. Set a timeline and write down all steps to achieve your goal within it.
  • Small things can make a big difference. For example, you can set up automatic payments and make biweekly payments instead of monthly.
  • Don’t overlook your health and emergency needs. Shell out for health insurance and create a $1,000 emergency fund. You will probably never need a personal loan again.
  • Save aside extra income and use it only to create necessary funds and pay off debts. Take a part-time job to earn even more.
  • Say no to impulse purchases. Look for free alternatives instead of spending on goods and services.
  • Use your credit cards. Consolidate credit card debts and transfer the balance to a 0% interest card. Never overuse your credit cards.

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