Six Ways to Avoid Scams

Scammers - avoid scamIn a tough economy, it's a sad but true fact that scams and financial fraud of all kinds seem to flourish like weeds. According to the Better Business Bureau, complaints to the agency rose 10% in 2010, with consumers filing 1.1 million complaints against North American businesses. Among the top scams reported: job hunter hoaxes, timeshare fraud and debt relief shams.

But despite the growth of scammers, you don't have to become a victim of some swindler's financial misdeeds.

Here are six dos and don'ts to follow that will help you avoid falling prey to scams:1. Do perform basic due diligence.

Before signing any paperwork or handing over any money, it pays to do some basic background checking on the company you're considering doing business with, especially if you have even the slightest reservations about the company's professional reputation, experience, or the product or service they're offering.

Look up a company's Better Business Bureau rating, or at the very least, do a quick online search to see if the company's name turns up favorably or negatively on Internet chat rooms or consumer review sites. Places like the can also tip you off to individuals and companies with particularly negative reputations.

2. Do ask for time to consider your options.

If someone is pressuring you to make a super-fast decision and discouraging you from first talking to family members, friends or perhaps a financial professional such as a lawyer, there's a good chance you could be dealing with a rip-off artist.

No legitimate business will insist that you drop everything and pay for something right on the spot -– with absolutely no time to consider your options, review a contract or consult others.

3. Do know your rights.

Whether you're entering into a legal contract or simply making a financial purchase you might later regret, it's a smart idea to know your legal rights before signing on the dotted line or turning over your hard-earned cash.

For example, with certain major transactions – such as getting a home loan – you have the right of rescission, which let's you back out of a mortgage if you change your mind or feel that something is amiss. The federal Truth in Lending Act gives you 72 hours after you sign your home loan documents to say, "Thanks, but no thanks. I changed my mind."

Buying a new or used car from an auto dealer or some third party you don't even know? Then bone up on federal and state lemon laws, which offer you protection against a vehicle with serious defects in its use, value or safety.

4. Don't fall for pleas for upfront fees.

Nearly all of us have received an email version of the "Nigerian money letter" where some poor soul claims that his father or sister or some other relative is under political or social duress, and needs our help. In exchange for our assistance, the scammer offers a big, fat cash reward.

In reality, the Nigerian money scam is just a way for an online fraudster to secure your bank account information or get you to turn over cash upfront before you get your alleged "reward."

That's why most of us know to just delete these so-called pleas for help, which are clearly bogus and ridiculous -- not to mention often littered with bad spelling and poor grammar.

Too bad many consumers who are wise to the Nigerian money scam don't use the same common sense approach in other areas. On the contrary, many Americans willingly give up money to any number of individuals and businesses on the basis of little more than someone's word. As a result, scores of people get victimized paying upfront fees to foreclosure rescue charlatans, phony credit repair companies and even financial aid scammers.

Anyone asking you to pay for services upfront -– before those services are even rendered –- could be a potential scammer. Even if they're not flat-out frauds, if you have a dispute for any reason, you have very little recourse in recouping your money if things don't go as planned or if the company doesn't deliver as promised.

5. Don't be guided by your emotions or ignorance.

Realize that fraudsters are counting on you to be in a certain emotional state in order for them to victimize you. In particular, con artists prey upon your need, greed and naivete.

If you're desperate and financial needy, chances are, you're not thinking in a clear-headed fashion. You're more prone to hear what you want to hear -– and scammers always know just the right things to say to push your emotional buttons.

When you're greedy, you're more likely to fall for those "too good to be true" offers and not exercise good judgment. That's why so many of the biggest financial fraudsters are able to con investors with fake promises of outsized returns, guaranteed results or speedy investment payouts.

Finally, when you're naïve, con artists can use your lack of knowledge against you to part you from your cash.

6. Don't fall for "in group" bias.

As human beings, it's natural for us to want to be around, and do business with, individuals we like -– particularly people who fit into our own ethnic, religious or social groups. But when it comes to money matters, this can be tricky business.

Consumer advocates caution people to be aware of the prevalence of so-called "affinity fraud." Simply put, this occurs when someone gets conned by an individual who looks like the victim (by virtue of race or gender), belongs to a shared social or community group, or has some trait in common with the victim. For instance, many of Bernie Madoff's victims were Jewish individuals or Jewish charities that trusted the notorious swindler, in part because of Madoff's own Jewish background.

By following the six dos and don'ts mentioned above, you can reduce your risk of falling victim to scams -- and safeguard your finances even as scams continue to grow and evolve.
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