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Debt relief scams: 6 red flags before you sign up
When debt feels overwhelming, offers to make it disappear look tempting. Many of them make things worse. Here is how to tell the difference.
"Cut your debt in half." "Erase your debt legally." When bills pile up, these promises sound like relief. Often they are the start of a bigger problem.
Six red flags
- Fees before any result. The FTC explains that companies selling debt relief by phone generally cannot charge until they settle or reduce your debt.
- Guarantees that your debt will disappear or be cut by a fixed percentage.
- Advice to stop talking to your creditors.
- Advice to stop paying without explaining late fees, collections and credit damage.
- Pressure to sign today.
- "New government program" claims that you cannot find on any official site.
What legitimate help looks like
- Nonprofit credit counseling: a counselor reviews your budget and explains options, often for free or a small fee.
- Debt management plan: you make one payment to the agency, which pays your creditors, often with reduced interest.
- Talking to creditors directly: many offer hardship programs.
Protect yourself
- Get every promise and fee in writing before you agree.
- Never pay with gift cards or wire transfers.
- Know your rights with collectors, explained in the CFPB debt collection guide.
Frequently asked questions
Can a debt relief company charge upfront fees?
Under the FTC's rules, companies that sell debt relief services over the phone generally cannot charge fees before they actually settle or reduce your debt.
Is debt settlement bad for my credit?
It can hurt it, especially if you stop paying while a settlement is negotiated. Late payments and settled accounts show up on your report.
Where can I find legitimate help?
Nonprofit credit counseling agencies can review your budget and, if it makes sense, set up a debt management plan. Check the agency before signing up.
Can I negotiate with creditors myself?
Yes. Many creditors offer hardship plans or reduced payments if you call and explain your situation.
Know your rights before talking to anyone about your debt.