Recognizing and Avoiding Debt Relief Scams

Debt relief scams are becoming more prevalent. Scammers claim they can erase your debt or fix your credit rating for a one-time fee, but anyone who promises to make you instantly debt-free is suspect. Let’s examine how to distinguish between legitimate companies and scammers.

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  • Written By
    Jennifer Schell

    Jennifer Schell

    Financial Writer

    Jennifer Schell is a professional writer focused on demystifying annuities and other financial topics including banking, financial advising and insurance. She is proud to be a member of the National Association for Fixed Annuities (NAFA) as well as the National Association of Insurance and Financial Advisors (NAIFA).

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    Savannah Hanson
    Savannah Hanson, financial editor for

    Savannah Hanson

    Senior Financial Editor

    Savannah Hanson is an accomplished writer, editor and content marketer. She joined as a financial editor in 2021 and uses her passion for educating readers on complex topics to guide visitors toward the path of financial literacy.

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  • Updated: May 1, 2023
  • 7 min read time
  • This page features 4 Cited Research Articles
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APA Schell, J. (2023, May 1). Recognizing and Avoiding Debt Relief Scams. Retrieved June 7, 2023, from

MLA Schell, Jennifer. "Recognizing and Avoiding Debt Relief Scams.", 1 May 2023,

Chicago Schell, Jennifer. "Recognizing and Avoiding Debt Relief Scams." Last modified May 1, 2023.

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Key Takeaways

  • Debt relief scammers claim they can erase your debt for a price, but leave you in a worse financial position.
  • Scammers disappear with your money, sometimes after convincing you to withhold payments. Your credit rating takes a hit, and you also have fewer resources with which to pay debts you still have.
  • If you give fraudsters access to your credit accounts, they can rack up more debt under your name.
  • No legitimate debt relief or credit counseling agency will contact you by robocall or pressure you into paying upfront for services.

How Debt Relief Scams Work

Debt relief scams falsely promise to set you free from your unpaid debts. Preying upon your natural desire to improve your financial standing, scammers promise to solve your debt problems in return for an upfront fee. Once they get paid, scammers disappear without providing any help, leaving already financially struggling victims in more dire circumstances. 

Scammers often imitate creditors or pretend to be legitimate entities and pressure you into sharing sensitive financial information. They often stress a sense of urgency and warn of terrible consequences if you don’t act quickly. Or they promise miraculous fixes: your debt immediately erased, your credit suddenly repaired. 

Debt and credit repair scams are on the rise. It’s not hard to see why: In 2022, 68% of Americans reported having debt, and much of it was credit card debt. With rising interest rates, it makes sense that people want to pay off their debt as quickly as possible. There are legitimate debt relief and credit counseling agencies, both for-profit and not-for-profit. Unfortunately, debt relief scams also abound.

Scammers target all types of debt, including credit cards, mortgages, car payments, student loans and medical debt. In 2022, the Federal Trade Commission (FTC) received nearly 113,000 reports of problematic debt collections.

Common Types of Scams

Legitimate debt relief and credit counseling agencies have no reason to contact consumers by spam or robocall. Be wary of any company promising the following, especially when they contact you first.

Common Debt Relief Scams
Debt Settlement
Debt settlement companies collect payments from you in an escrow account, then use it to negotiate a lower overall debt with your creditors. Because the process involves paying into escrow rather than your creditors, you run the risk of damaging your credit rating by skipping payments in the interim.

Scammers promise to pay off your debt for an upfront fee or will make off with your money without contacting your creditors. That leaves you with damaged credit and without the funds to make future payments. Upfront fees are a red flag!

Credit Counseling
Credit counseling scammers promise to negotiate with your creditors on your behalf for a price. Scammers usually make grandiose promises, like instantly erasing your debt or repairing your credit rating while asking for expensive upfront fees.
Debt Consolidation
Debt consolidation is the process of combining all your debts into one payment plan. Legitimate debt relief and credit counseling agencies use this method. Fraudulent companies ask for a fee before creating the plan.

Consequences of Falling Victim to Debt Relief Scams

Far from easing your debt problems, debt relief scams leave you in a worse financial situation than before. Not only will you lose the money you gave the scammer, but you will also have all your debt. You may have missed one or more payments to your creditors, which can damage your credit rating and earn your punitive interest charges. 

If you give out your financial information (like bank or credit card account numbers), a scammer can run up more debt under your name.

Warning Signs of a Debt Relief Scam

While debt relief scams constantly change approaches, they usually come with warning signs. Legitimate debt relief companies never contact you with spam emails or robocalls, nor do they make too-good-to-be-true promises. 

Real debt relief organizations will explain any fees, none of which you should pay in advance, and they will communicate your rights and responsibilities. Any repayment plans will not be instantaneous. 

Upfront Fees

If a debt relief company asks for fees before providing any service, assume it is a scam and cut off contact. The FTC’s Telemarketing Sales Rule makes it illegal for debt relief companies to ask for money before providing services. Legitimate debt relief firms (including non-profits) can and do charge fees but only after they provide services. 

Discouraging Communication with Creditors

Questionable debt relief companies often advise you to stop communicating with your creditors, another red flag. Legitimate debt relief companies might negotiate with your creditors for you or serve as a go-between and transfer a single payment from you to multiple creditors on your behalf. But they will not discourage you from contacting your creditors.

Little Information About the Company Exists

If you can’t find much information about a debt relief company, your internal radar should go off. This is especially true if a company refuses to send you information about its services until you provide your sensitive financial information. Legitimate debt relief companies have public websites. You should be able to find reviews of their services from past customers on social media or through consumer sites like the Better Business Bureau.

Guarantees About Erasing Debt

The adage “if it sounds too good to be true, it probably is” applies when it comes to debt relief. Legitimate debt relief companies will negotiate with creditors for lower interest rates and/or design a payment plan that fits your budget. Just know that paying off your debt is a process that can take months or years. Don’t trust a company that promises instant debt relief in exchange for a fee. 

Demanding Personal Financial Information

When you work with a credible debt relief firm, you will have to share information about your personal financial situation. That helps the company create your payment plan. But no authentic debt relief company will demand personal financial information from you to begin the process. 

How To Avoid Debt Relief Scams

If you decide to try a debt relief or credit counseling program, do some research. As a matter of course, avoid any debt relief company that contacts you by spam (email or text) or by robocall. The FTC publishes a list of scam companies it has prosecuted for reference.

National Debt Help Organizations

These organizations recognize and certify legitimate debt relief and credit counseling agencies.

Once you’ve found a company within your area, check its status with the Better Business Bureau. Search their social media for reviews and recommendations from former clients. If you’re satisfied with what you learn, make an appointment for an initial call. Remember: you are under no obligation to sign up with or pay a company just because you make inquiries.

Signs of a Reputable Debt Company

  • Assesses your personal situation and needs
  • Clearly explains all your rights and responsibilities
  • Creates a payment plan that works within your budget
  • Has a history of success with past clients
  • Negotiates for lower interest rates on your behalf
  • Provides resources and education to help you understand how to avoid debt in the future
  • Only charges for services after you see results

Alternatively, you can opt for DIY debt relief, meaning you contact all your creditors and attempt to negotiate a lower interest rate or longer repayment schedules yourself. Some credit card companies are open to this approach, especially for smaller debts. Others are not.

Resources for Those Who Believe They Were Scammed

If you believe you were scammed by a debt relief company, there are many resources available to help you report the scam and seek assistance.

The FTC has information about scam warning signs, and a website at which you can report completed or attempted fraud

The Consumer Financial Protection Bureau (CFPB) is a government agency created to help and educate consumers on financial matters. It provides free information about fraud and scams.

In addition to maintaining a roster of legitimate and ethical debt relief and credit counseling agencies, the Better Business Bureau has information about how to avoid scams

The NFCC also has educational materials about how to recognize scams and what legitimate companies can do to help you.

If you were scammed and need legal advice or assistance, contact your state’s Attorney General office for the next steps.


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Last Modified: May 1, 2023

4 Cited Research Articles writers adhere to strict sourcing guidelines and use only credible sources of information, including authoritative financial publications, academic organizations, peer-reviewed journals, highly regarded nonprofit organizations, government reports, court records and interviews with qualified experts. You can read more about our commitment to accuracy, fairness and transparency in our editorial guidelines.

  1. Federal Trade Commission. (2023, February 23). New FTC Data Show Consumers Reported Losing Nearly $8.8 Billion to Scams in 2022. Retrieved from
  2. FTC. (n.d.). Debt Relief and Credit Repair Scams. Retrieved from
  3. Statista. (n.d.). Leading Sources of Debt Among Consumers in the United States from 2017-2022. Retrieved from
  4. Tableau Public. (n.d.). Debt Collection by Federal Trade Commission. Retrieved from