Deal Finder: Avoid Financial Pitfalls during COVID-19 crisis
By LaTina Emerson, The Shopper Deal Finder
Many people are experiencing financial difficulties because of the COVID-19 pandemic, but it’s imperative to make informed decisions when facing a monetary crisis. Making the wrong move could make a bad situation worse and have lasting consequences. Here are some pitfalls to avoid when you’re having financial troubles:
Debt Relief and Credit Repair Scams
Some debt relief offers are too good to be true. Debt relief scams target individuals with significant debt and make false promises to negotiate with creditors to settle or reduce repayment. The companies often charge a large, upfront fee with a guarantee of eliminating or reducing debt quickly, but fail to help settle or lower the debt.
Some of these fraudulent companies take consumers’ money and disappear, while others string them along. They might advise consumers to halt communications with their creditors and even refuse to send information about debt relief services until they’ve received the person’s financial information, such as credit card numbers and balances. Student loan debt is a big target, and consumers could receive fake promises of being enrolled in government debt forgiveness programs, according to AARP.
Reputable debt relief organizations, on the other hand, offer consumers advice on budgeting and money management, facilitate negotiations with creditors and help establish plans to pay down debt gradually. While these legitimate companies charge for their services, they only collect funds when they get results.
Credit repair scams also target consumers who are having credit issues, enticing them to purchase services and falsely claiming to remove negative information from their credit report, even if the information is true.
The Federal Trade Commission has worked diligently to bring legal action against these scammers. The Telemarketing Sales Rule protects consumers seeking debt relief services, such as debt settlement or credit counseling, and it prohibits for-profit companies that sell these services over the phone from charging a fee before actually settling or reducing the consumer’s debt. The rule forbids debt relief companies from making false representations and requires them to disclose key information needed to evaluate these services, according to the Federal Trade Commission.
To effectively deal with debt, first consider whether it’s possible to deal with the problem on your own. Assess your income and expenditures, such as utility bills, mortgage or rent payments, car payments, credit card bills, groceries, medical care, etc. If you don’t have enough to pay all of your monthly bills, determine whether any expenses can be eliminated or reduced. If not, contact your creditors to let them know you can’t make your monthly payments. Explain your financial hardship, such as job loss from the COVID-19 pandemic, and try to work out a payment plan or possibly suspend or reduce payments. Act now before debts are turned over to a debt collection agency.
Title Pawns and Cash Advances
Don’t fall prey to sub-prime lenders, which offer short-term cash at very high interest rates. For example, title pawn businesses offer cash for your vehicle’s title. These risky, expensive loans, which are typically for 15 to 30 days, use the vehicle’s title as collateral.
When applying for the loan, consumers are required to present their vehicle, clear title, photo ID, proof of insurance and sometimes a duplicate set of car keys, according to the Federal Trade Commission. Failure to repay the pawnbroker as agreed can result in the loss of the motor vehicle and additional fees if the vehicle is repossessed.
In Georgia, these companies are allowed to charge a 25 percent monthly interest rate for the first three months and 12.5 percent each additional month, for a combined yearly interest rate of 187.5 percent, according to the Georgia Department of Law’s Consumer Protection Division. This triple digit percentage rate is much higher than most forms of credit.
If the vehicle is repossessed, the consumer not only loses their transportation, but also the money the vehicle was worth. If needed, consider other options such as a small loan from a bank, credit union or small loan company. Be sure to understand the terms and shop around to find the best offer.
Beware of Scammers
The COVID-19 pandemic has brought out even more scammers seeking to commit identify theft and steal consumers’ money. The state of Georgia is advising residents to watch out for COVID-19 scams involving fraudulent websites, texts, emails and social media posts that are designed to steal personal or financial information or install malware on devices.
For instance, the state of Georgia has received complaints about text messages that inform recipients that someone they came in contact with has tested positive or shown symptoms for COVID-19 and recommend for the person to self-quarantine and get tested. The message directs the person to a website that asks for personal information. These fraudulent websites have been set up to collect bank account information, email addresses and passwords.
Consumers should also beware of emails, text messages and robocalls about COVID-19 stimulus money that appear to come from the U.S. Department of the Treasury, but are actually scammers impersonating government officials. Consumers are told they must click on a link to receive their stimulus money, and they’re instructed to enter their personal and financial information. However, the majority of stimulus payments will be distributed automatically, and no action is required, according to the Georgia Department of Law’s Consumer Protection Division.
Other scams include websites, emails and posts that sell phony products, offer prevention tips or bogus information about cases in the area, solicit donations for fake charities to help victims of the crisis or promote fake cures, tests or vaccines.
It’s important to get information directly from trusted sources, such as the Centers for Disease Control and Prevention, Georgia Department of Public Health and World Health Organization. Also, don’t click on links from sources you don’t know.