Householders struggling with debt or facing repossession are being warned against falling victim to unscrupulous companies that are targeting vulnerable victims of the recession.

With nearly 3,000 people being made redundant every day and a house repossessed every ten minutes, millions of people are desperately seeking help with mortgage arrears and debt. But many are turning to disreputable businesses selling expensive and inappropriate debt products.

Beccy Boden-Wilks, of National Debtline, says: “Not all companies claiming to offer free and impartial advice can be trusted. Check who you are dealing with to avoid being ripped off. If in doubt, contact one of the main debt charities - the Consumer Credit Counselling Service, National Debtline or Citizens Advice.”

Here Times Money lists the five main traps to avoid when struggling with debt.

Sale-and-rent-back schemes

More than 50,000 householders facing repossession have used one of these schemes, in which a property company buys a home in return for allowing the owners to become rent-paying tenants. Consumer groups fear that most of these people have been ripped off.

The industry is unregulated at present and many people have sold their homes for substantially less than the market value and paid thousands of pounds in rent and fees, only to be evicted months later. Some companies fail to pay the mortgage and the house is repossessed anyway. Peter Tutton, of Citizens Advice, says: “We continue to see cases of very severe problems connected to sale-and-rent-back agreements. People have lost their homes and substantial sums of money.”

Last month the Financial Services Authority, the City watchdog, finally announced that it will regulate sale-and-rent-back businesses by 2010. Dominic Lindley, of Which?, the consumer organisation, says: “Avoid these schemes until they are regulated. If you are having difficulties with mortgage payments, contact your lender to explain the situation and make alternative payment arrangements.”

The Government's mortgage rescue scheme may also be able to help. This allows households in England facing repossession to reduce their monthly mortgage payments by selling a share in the home to a housing association, or by selling the property to the association outright and remaining in it as tenants on subsidised rents.

The scheme is aimed primarily at elderly and disabled homeowners and families with young children, but any household with an annual income below £60,000 can apply. Contact your local authority's housing department for more information.

Unenforceable credit agreements

There has been a spate of advertising from companies claiming that they can write off debts and win compensation by challenging lenders over whether credit agreements can be legally enforced. Charges are usually about £500 to check a credit agreement, but there is no guarantee that it will be possible to to make a successful challenge. The companies claim that agreements are void if certain figures, such as the rate of interest or total amount payable, is not shown, or the agreement was not signed.

Sue Edwards, of Citizens Advice, says: “These advertisements appear to offer an easy way out for those struggling with debt, but most credit agreements are legal and enforceable.”

Citizens Advice and other debt charities can check a credit agreement free of charge to see if there are genuine grounds for a legal challenge.

Fake charities

This week the Office of Fair Trading (OFT) closed down the websites of 11 fee-charging companies posing as charities or government organisations. The websites used similar domain names to charities such as National Debtline and parts were even copied from legitimate sites. But many of the companies were trading without a consumer credit licence and were merely trying to charge for debt advice and sell expensive products. Genuine charities, such as Citizens Advice, do not charge a fee to help people to devise budgets and repayment plans, or for negotiating with creditors.

Ray Watson, of the OFT, says: “Consumers are advised to take particular care when searching for terms such as citizens advice or government advice to ensure that they are dealing with a genuine charity service. Consumers should also be careful not to deal with unlicensed traders.”

You can check whether a business holds a consumer credit licence by searching the OFT register at www.oft.gov.uk/consumercreditregister.

Expensive credit

Many people struggling with debt will have poor credit ratings and may be desperate for extra cash, but “quick and easy” short-term credit can be exorbitantly expensive. Payday loans typically lend up to £750 for 30 days and are considered an easy fix for those short of money at the end of the month. However, with providers such as QuickQuid charging £25 for every £100 borrowed, the interest rate can amount to more than 2,000 per cent.

Many payday loan companies have increased advertising and “special deals” in the recession, with some offering loyalty rates or paying customers who recommend friends and relatives.

Other people needing short-term cash may be tempted by doorstep loans. Provident Personal Credit, one of the largest of these loan companies, offers up to £500 “delivered to your door” and an average annual percentage rate (APR) of 189 per cent. Money Shops, which have been springing up on high streets in recent months, also offer short-term loans, charging £15 for every £100 borrowed over 30 days.

John Fairhurst, of Payplan, another debt charity, says: “The average budget deficit for households in debt is £650 a month - and many of these households turn to expensive short-term credit to tide them over. But this merely accelerates a downward spiral. Instead of taking out more loans, borrowers need to talk to their creditors, draw up a detailed budget and devise a realistic repayment plan. Do not be scared to approach lenders and be honest about your situation.”

Intimidating debt collectors

Increasing numbers of borrowers in arrears are reporting being harassed by creditors and their debt collection agencies. Charities say that bad practices include calling the borrower ten times an hour all day, phoning friends or family to ask for information or even payments and emptying savings accounts without permission.

This can lead to borrowers repaying low-priority debts, such as credit and store cards, before priority payments such as a mortgage and utilities, simply to satisfy the creditors who are shouting the loudest.

Harassment of people in debt by creditors or their agents is a criminal offence under the Administration of Justice Act 1970. The OFT has also laid down rules for debt collectors, including prohibiting them from contacting borrowers at unreasonable times or using more than one debt collection business at the same time. The full guidelines can be found on the OFT website.

Ms Boden-Wilks says: “Do not be bullied by debt collectors into handing over more money than you can afford, especially on low-priority debts. Tell creditors that you are sticking to your debt repayment plan.”

To make a complaint against a creditor or debt collection agency, contact Consumer Direct for advice on 08454 040506 or visit the website at consumerdirect.gov.uk. Trading standards can investigate the company, which can lead to prosecution and a fine of up to £5,000.

Where to seek help

Citizens Advice Find your local bureau at www.citizensadvice.org.uk

National Debtline Visit nationaldebtline.co.uk or call 0808 8084000

Consumer Credit Counselling Service Go to www.cccs.co.uk or call 0800 1381111

Payplan Visit payplan.com or call 0800 9177823

Shelter For housing problems, go to shelter.org.uk or call 0808 8004444

Consumer Direct Visit consumerdirect.gov.uk or call 08454 040506

Case study - Repayment plan appeased our creditors

Lucy Franke and her husband, Matthew, have £40,000 of unsecured debt and were harassed by debt collection agencies before taking control of the situation with a repayment plan.

The couple, from Romford, Essex, got into difficulties when Mrs Franke stopped working full-time to have their children, Sasha, 5, and Alex, 2. The 33-year-old, pictured with Sasha, now works three days a week as a human resources adviser.

She says: “We had a second property, but our lower income meant that we could not afford the mortgage repayments, so we decided to sell. Unfortunately, we had to take £15,000 less than we paid for it. We took out three credit cards and three personal loans to fund living expenses.”

The Frankes soon got into arrears and were chased by debt collection agencies. “We were getting desperate,” Mrs Franke says. Eventually they contacted National Debtline and the Consumer Credit Counselling Service for advice and managed to arrange a £50-a-month repayment plan.

“Our creditors agreed to freeze our interest and charges, which has allowed us to keep the debts under control,” she adds.