The top five biggest debt scams

Rachel Robson gives you the lowdown on the five worst debt rip-offs to avoid...

If you feel like you've got a never-ending stream of debt coming out of your ears, you won't be the only one. And when times are tough, finding enough money to put food on the table can be a struggle, let alone finding the cash to pay off all your debts.

Unfortunately, however, if you are struggling with your finances, this can make you far more susceptible to scams. And believe it or not, there are several rip-offs out there that are specifically targeted towards those people with debt problems. So here's what you need to know.

#1 - Claims handlers

Imagine spotting an advertisement in a newspaper promising you that your debts can be legally wiped out for good and that your credit card balance and loan can be written off just like that. It would sound pretty tempting, wouldn't it?

Or how about if you were offered help with a claim against all those bank charges you've incurred or that Payment Protection Insurance (PPI) you were mis-sold? Surely that's worth consideration?

These are the types of deals you might be offered by a claims management company (CMC). But if you've ever been tempted, a recent study for the British Bankers' Association might make you think again.

The survey carried out on behalf of the trade body revealed that some claims management companies are specifically targeting vulnerable people in financial difficulties and making promises they simply can't keep.

According to the study, many companies are luring in customers on the promise they can strike out their debts, while having no evidence they can do so or demanding upfront payments.

As a result, anyone paying a claims handler to deal with their finance problems could simply be putting their money at risk.

The report - which was based on 'mystery shopping' - also highlighted that many companies promising compensation fail to highlight risks such as potential damage to your credit rating.

What's more, adverts claiming to be 'no win, no fee' can also be misleading, with some companies offering unrealistic timescales for the claims process. Success rates were also questionable.

Perhaps most worrying of all, the study also revealed there's no requirement for claims handlers to hold any qualifications. So this means that any advice you receive from a claims handler could be completely incorrect.

#2 - Dodgy phone calls

The Ministry of Justice was recently alerted to a scam in which customers were receiving phone calls from people claiming to be from The Ministry of Justice or Office of Fair Trading or a high street bank.

If you do receive one of these calls, you might be told you're entitled to money for the repayment of a bank charge or other debts. However, you'll then be asked to provide personal information such as your bank account details and be asked to pay a fee.  

These callers are NOT from the Ministry of Justice, Office of Fair Trading or any other genuine organisations, so if you receive one of these calls, hang up and don't pass on any of your personal or financial details.

None of these organisations will ever ask you for personal details, and if you do hand them over, you're putting yourself at risk of identity fraud.

You can read more on how to protect yourself from identity fraud in Don't fall victim to this massive scam.

#3 - Suspicious emails

If you receive an email from a company claiming it can help you with your debts, be wary.

Typically, these companies will say they can buy all of your debts which you can then repay with a far smaller monthly repayment than you've been paying to your original lender.

However, it's not legally possible for a company to buy a debt without having the lender's permission. Even if you think your debt has been 'bought', you will still owe money to your original lender.

What's more, if you stop paying money to your original lender, this could damage your credit rating.

#4 - Sale and rent back

If you're in a lot of debt and are struggling with your mortgage payments each month, you might be tempted to sign up to a sale and rent back agreement rather than face repossession.

If you do agree to this, the sale and rent back firm will purchase your property but allow you to continue living there as a tenant, paying rent.

But while this can sound like a great solution, the Office of Fair Trading has accused these firms of deliberately misleading buyers about the value of their home, purchasing the property at a huge discount.

Many firms have also been misleading tenants about how long they can stay in the property - typically telling customers they can stay as long as they want, but then kicking them out after just a few months.

The FSA is now working on fully regulating the sector, but as my colleague John Fitzsimons points out in Please stop this terrible property scam, the FSA's current scheme is still riddled with flaws. And until sale and rent back is properly regulated, it's well worth avoiding.

#5 - Expensive advice

If you're seeking debt counselling, you might think turning to your bank would be a logical decision. However, some banks have the audacity to charge you for this advice - and often fees can be as high as £100!

Halifax, for example, charges £100, Lloyds charges £94 and Abbey charges £79.90!* But if you're already struggling with money, how are you going to find a spare £100 to seek this advice?

Personally, I think this is outrageous and a complete rip-off - particularly as there are plenty of other places to turn to that will offer brilliant advice absolutely free. So if you are offered advice and you have to pay for it, walk away and seek it elsewhere.

You're not alone

If you are struggling with your finances and falling deeper into debt, don't feel you have to deal with it on your own.

There are plenty of free, independent debt advisory services which will be able to provide guidance on a range of options to help your sort out your debt problems.

Some of them may even be able to speak to the companies you owe money to on your behalf and negotiate more manageable repayment plans so you can get your finances under control again.

Good debt charities to contact include Citizens Advice, National Debtline, the Consumer Credit Counselling Service, Payplan and Advice UK. You can read more about all of these in Get out of debt with free advice.

Finally, if you have a financial dispute with your bank - whether it's about fees you've been charged or insurance mis-selling - you should always approach your bank about it first. If you can't resolve it this way, contact the Financial Ombudsman Service which helps to settle financial disputes. This service is free! 

And if you want further help with getting out of debt, check out Eight steps to debt-free living as well as our Destroy your debt goal. Don't forget to also check out our video Watch out for this debt rip-off.

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