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7 debt relief scams to have on your radar

Don't be fooled by false promises — here are red flags to watch out for and tips to find a legit company.

The content on this page is sponsored by National Debt Relief, a top-rated company that helps Americans negotiate down their debts.

Debt settlement can be a useful tool if you’ve struggled to pay off your debt on your own. But the industry is full of potential scams masquerading as legitimate services.

They may offer settlement with your creditors and reduction of your debt, but often for an upfront fee or after you share your personal financial information. When this happens, they won’t work with your creditors at all — leaving you with a lowered credit score and worse finances.

Keep yourself safe by knowing what to look out for and where to get legit relief.

Scam #1: Promises relief that’s too good to be true

While debt relief companies can certainly knock a good chunk off of your debt, promised savings — especially guaranteed savings — of 75% or more is a sign of a scam. It’s possible — but extremely rare.

And don’t be tricked by deceptive advertising. Some debt relief companies twist the numbers to say that you’ll only pay 30% of your debt — equal to a savings of 70% — in an attempt to reel you in with a big number. This isn’t necessarily a scam, but it isn’t a good sign that the company has your best interests in mind.

Scam #2: Charges fees up front

In 2010, the Federal Trade Commission (FTC) passed a ruling that prohibits debt relief companies from charging upfront fees. While you will need to pay a fee for debt relief — typically on the debt you enroll or your total savings — a debt relief company can’t charge you until after it reaches a settlement with at least one of your creditors. Any company that wants you to pay before you have proof of a settlement is a scam.

Scam #3: Claims to wipe your credit report completely clean

Any debt relief company that claims it can improve your credit score by removing legitimate negative information is a scam. While there are debt relief companies that can help rebuild your credit by following up on settled debts and updating incorrect information on your credit report, they won’t remove or contest legit information — such as missing payments or defaults.

Scam #4: Puts you on a one-size-fits-all plan

Legitimate debt relief companies should tailor their program to your finances. This means it will work with you to determine if debt relief is the best course of action and set you up with financial resources, such as an FDIC-insured savings account, to save for future settlements.

Any claims that a generic program will work are likely false and a sign of a scam. This is especially true if the debt relief company claims it can take on secured debts, like home loans or auto loans. These work differently than credit card and other unsecured debt, so be sure your debt relief company crafts a plan unique to you.

Scam #5: Asks for private financial information up front

Be wary of any online form that asks you to put in sensitive personal information like your Social Security number or bank account numbers. A debt relief company should only ask for this type of information after you’ve signed up and started the program.

If a company refuses to talk with you until you send in sensitive details, it’s a sure sign of a scam. Look elsewhere for debt relief.

Scam #6: Claims to be a new government program

Some debt relief scams claim that there is a hot new government program to help erase your debt. But there are rarely government-sponsored options to tackle consumer debt, and there are free options for federal student loan debt.

If a company says you qualify for a special government program, do your due diligence. Look up the program and reach out to government officials. If it is real, there’s likely an option to use the program by yourself — without paying a fee to a third-party company.

Scam #7: Makes the list of banned debt relief companies

The FTC manages a list of companies and people banned from debt relief. If you think the debt relief company you’re working with may not be legit, check here first. This doesn’t mean you aren’t looking at a scam, but being on the list is a definite reason to cut off contact and avoid the company.

How to find a legit debt relief company

Beyond keeping an eye out for scams, you’ll want to ensure you’re working with a legit debt relief company. These tips should help guide your choice.

Cites reasonable numbers

Debt settlement is far from a quick process. In most cases, it will take anywhere from two to five years to reach settlements with all of your creditors.

A legitimate debt relief company will be up front about this. And it shouldn’t make any guarantees about the amount you’ll have forgiven. Instead, it should provide examples of real debts it’s settled to give you an idea of what you might save without promising that you’ll see the same results.

Personalized review and alternate options

Many debt relief companies also offer budgeting and money management services. It may also direct you to a credit counselor or outside resources to help you get your finances in order.

Most importantly, a legit debt relief company will review your finances and debts to determine if you’re a good fit. If you aren’t, it should explain why and give you alternate routes to handle your debts — at no cost to you.

Addresses risks and overall costs

Debt relief will likely have a negative impact on your credit score, especially if you stop making minimum payments on your accounts while you’re in the program. And only about 23% of people who enter a program settle all of their accounts using debt relief, according to a 2021 Harvard Kennedy School report.

A legit debt relief company will be up front about the risks, including the fact that a creditor may not settle, and provides resources for you. Remember: A creditor is under no obligation to settle. Instead, it may choose to take legal action against you if you stop paying your debts. The FTC provides a list of disclosures debt relief companies must provide so you know you aren’t being taken for a ride.

Fees charged after first settlement payment

Most legit debt relief companies don’t charge a fee until after you’ve made a payment toward a settlement it negotiated. This means you’ll pay multiple fees over time, usually a percentage of the settlement amount or the debt you started with, as settlements with your creditors are reached. Rather than a lump sum, this spreads out the cost for you — and ensures you’re only paying for successful negotiations.

A debt relief company should also go over the costs with you. Account setup fees and monthly maintenance fees are common and should be disclosed before you get started.

Nationally accredited

There are two industry associations that review debt relief companies: The American Fair Credit Council (AFCC) and the International Association of Professional Debt Arbitrators (IAPDA). You can check to see if your debt relief company is accredited by one or both of these organizations.

In addition, accreditation from the Better Business Bureau (BBB) — as well as high customer reviews — are a good sign that you’re working with a legit debt relief company.

Savings account in your name

A debt relief company will typically require you to have a savings account where you deposit your monthly payments. This is what will be used when a settlement is reached to pay off your creditors.

Any legit company will put this savings account, managed by an FDIC-insured bank, in your name. You should have access to all the funds inside of it at any time — including interest that money earns — and be able to withdraw it if you choose to stop using a debt relief company’s services.

11 myths about debt relief — debunked

What it’s like working with National Debt Relief

National Debt Relief is one of the top-rated debt settlement services out there. Not only does it have high ratings from customers on its BBB and Trustpilot pages, but it’s also accredited by the AFCC and the IAPDA.

  • Average debt it settles: $28,000 to $30,000
  • Average savings: 50% before fees, or around 30% including fees
  • Average program length: 24 to 48 months

To get started, you will need to have at least $7,500 in unsecured debt. Monthly payments go to a trust account with Global Client Solutions, member FDIC. When you enroll, National Debt Relief will review your situation and help you determine the best course of action.

Read our full review of National Debt Relief to determine if it’s a good fit for you.

How to report a scam

If you think you may have been a victim of a scam, you should file a report with the FTC and your state attorney general.

File a report with the FTC

To report a debt relief scam, you can visit the FTC Report Fraud homepage or call the FTC Consumer Response Center at 877-382-4357. You will need to answer a few basic questions about the scam, including:

  • Any money you paid or sent.
  • How you paid or sent those funds.
  • Most recent date you paid or sent money.
  • Company name.
  • Full name of person you spoke with.
  • Any information you have about the company.

File a report with your state attorney general

You may also want to find your state attorney general or Division of Consumer Affairs and file a report. The exact process will vary by state, but you should be able to call or email both offices to get started on a report.

Debt relief alternatives

Debt relief isn’t always the best option — consider all of your alternatives before signing up.

  • Credit counseling. Credit counseling is a free service that helps you learn about and manage your finances. Check with local banks or browse a list of approved credit counselors from the Department of Justice.
  • Do it yourself. You’re fully capable of negotiating with your creditors on your own. But be prepared to do the leg work researching the creditors’ policies, save up cash to make the settlement payment and keep track of any and all records related to it yourself.
  • Debt consolidation loan. This may not be an accessible option if you don’t have good credit or a low debt-to-income (DTI) ratio. But if you do, you may be able to lower your average interest rates and pay off your creditors with a loan or balance transfer credit card.

Most legit debt relief companies offer debt management alongside debt settlement. And if you’re considering bankruptcy, be sure to understand the full scope of consequences before you file.

Bottom line

There are plenty of scams out there looking to take advantage of consumers. But by knowing what a scam might look like and comparing legit debt relief companies, you can stay one step ahead while you work on lowering your debt.

Frequently asked questions

Our answers to common questions about debt relief scams.

Does debt relief hurt credit?

Yes, debt relief and debt settlement can hurt your credit score. Most debt settlement companies advise you stop paying your creditors, which will definitely lower your score. And even when you settle, your credit report will show that you haven’t paid in full — another aspect that can hurt your credit.

Can a debt relief company help with my student loans?

Some companies, like National Debt Relief, work with some student loan debt, but it’s rare. Scams will typically advertise special programs or forgiveness options that don’t exist. Don’t fall for it: There are student loan debt relief options, but in most cases, you won’t qualify.

Will I owe taxes on settled debt?

You may — and it’s an additional cost you should take into account. The government may consider forgiven debt as income, which means you’ll owe taxes on it.

Your debt relief company should be able to help you navigate this possibility. If not, speak with a tax adviser for next steps you can take.

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