Minnesota Attorney General Lori Swanson warned her state's residents this month to avoid scam artists pretending to help consumers negotiate lower credit card interest rates. In some cases, companies posed as consumers' own credit card lenders and convinced victims that enrollment in a debt settlement program was mandatory. Swanson filed three lawsuits against fly-by-night operators, including one company that charged consumers up to $1,995 in upfront fees.
Instead of responding to solicitations, personal finance experts advise stressed-out cardholders to pursue three legitimate ways to cut interest rates.
- Credit card renegotiation. Cardholders in good standing have the power to ask for better terms, or to take their business elsewhere.
- Hardship assistance programs. Many credit card issuers can temporarily lower interest rates or freeze service fees for customers who can provide proof of unemployment or medical emergencies.
- Debt consolidation loans. Community banks and other consumer lenders can transfer balances from high rate credit cards to less expensive loans, especially when consumers have home equity or other collateral.
Swanson and other state officials warn consumers that a high pressure sales pitch is often the first sign that a prospective debt settlement company may not be legitimate. Consumer advocates note that debt settlement scammers often request more money in fees than it would take to pay down enough credit card debt to earn more favorable terms.