Approached with a limited-time offer that sounds too good to be true? Stop the presses and do your research before signing on the dotted line.
As the saying goes, if it sounds too good to be true it probably is.
That adage is particularly applicable when it comes to personal finance. Most people don't think that they will ever become the target of a scam or fraud, yet there are thousands of stories about people losing money, and even the educated and the rich aren't exempt. Bernard Madoff, for example, defrauded thousands of investors of a total of $65 billion.
Trust your gut
While it's not always possible to recognize fraud or a bad deal, your instincts are probably better than you think when it comes to determining whom to trust and how to handle your money. Often we ignore those instincts. Maybe you're being offered a chance to stay in your home and avoid foreclosure, which you so desperately want to do, but the terms are confusing and sound shady. Or maybe you've encountered a particularly persuasive salesperson who knows exactly what to say to push you through signing a contract even though you don't understand all the terms.
But while the salesperson is yammering on and pointing out where to initial and where to sign, you're getting a sinking feeling in your stomach. The process is in motion, and the only person you have to consult is the one telling you you're getting a great deal. When a deal sounds too good to be true, there's a catch.
Call a time-out
When you find yourself in a situation like this, the best thing to do is to stop everything. The salesperson might have a slick and sophisticated sales pitch, but you always have the right to call a time-out.
Firmly tell him or her, "I need to think about it." If they persist, repeat yourself. If "the deal" is only good right now, that's all the more reason to be suspicious. A legitimate offer won't disappear because you take a day or so to do some research, and hasty decisions, like impulse buys, are never a good idea. The FBI offers tips for sussing out whether a deal is suspect, including the following red flags:
- Unsolicited. Scams typically bait people with unsolicited letters, e-mails and phone calls.
- Urgent. Again, if you must decide right then and there, just pass on it.
- Engages your emotions. Scammers like you to think you're smart for getting a good deal, generous for helping someone out, or lucky for finding the solution to one of your biggest problems. In your desperation you convince yourself it is the only solution, doing half the work for the scammer.
- Requires money. If you are asked for cash, a check or bank account information, end the conversation, even if they offer to send you money first. Never give someone access to your checking or savings account.
- Requires personal information. If you didn't initiate the contact, don't verify or give out personal information, including addresses, account numbers, passwords and PINs.