Quick answer
The biggest red flag is any debt relief company that charges fees before it settles a debt. That's illegal under the FTC's Telemarketing Sales Rule for companies selling by phone. Also be wary of guaranteed results, pressure to sign quickly, and advice to stop talking to creditors. Legitimate companies explain fees, timelines, and risks in writing before you enroll.
Key takeaways
- Upfront fees before any debt is settled are a major red flag and generally illegal for phone-sold debt relief.
- No one can guarantee how much your debt will be reduced.
- Your program savings should sit in an account you own and can withdraw from at any time.
- Check complaints with your state attorney general and the CFPB before enrolling.
Most people looking for debt relief are under real stress, and that's exactly what scammers count on. The good news is that federal rules make most scams easy to recognize once you know what to look for.
What rules do debt relief companies have to follow?
The Federal Trade Commission's Telemarketing Sales Rule (TSR) covers debt relief services sold over the phone, including when you call a company after seeing an ad. Under the rule, a debt relief company:
- Can't charge fees until it has settled or changed the terms of at least one of your debts and you've made at least one payment under that new agreement.
- Must base fees on either a percentage of the amount saved or a proportional share of the total fee as each debt is settled.
- Must tell you, before you enroll, how long it will take to get results, how much it will cost, and the possible negative consequences.
- If it asks you to save in a dedicated account, that account must be at an insured financial institution, you own the funds, and you can withdraw at any time without penalty.
Many states have additional licensing and disclosure requirements.
What are the red flags of a debt relief scam?
Walk away if a company:
- Asks for money before settling any debt. "Enrollment fees," "setup fees," or "first-month fees" paid upfront are a major warning sign.
- Guarantees results, like "we'll cut your debt in half" or "become debt-free in 12 months, guaranteed."
- Says it can stop all collection calls and lawsuits. It can't.
- Claims to be a government program or says "new government debt forgiveness" applies to credit cards.
- Tells you not to talk to your creditors without explaining the consequences.
- Won't put fees, timelines, and risks in writing.
- Pressures you to sign today.
- Promises to remove accurate negative information from your credit report.
What questions should I ask before enrolling?
- When exactly do you charge fees, and how much, in dollars, for my debts?
- Where will my money be held, and can I withdraw it at any time?
- Which of my debts can't be enrolled?
- What happens to my credit, and how will you handle a lawsuit if a creditor sues?
- What percentage of your clients complete the program?
- Are you licensed in my state?
A trustworthy company will answer every one of these clearly.
How can I check a company's track record?
- Search complaints in the CFPB's consumer complaint database.
- Check with your state attorney general and state financial regulator.
- Read independent reviews, and look for patterns, not one-off complaints.
What are the alternatives to a debt relief company?
You can negotiate with creditors yourself, ask a nonprofit credit counseling agency about a debt management plan, or look into a consolidation loan if your credit allows. Compare all of them in our guide to debt settlement vs. debt consolidation, or estimate the numbers in our debt relief calculator.
Get a no-pressure second opinion
Our free debt evaluation explains which options fit your situation, including ones that don't involve a debt relief program. There's no obligation, no upfront fee, and it won't affect your credit score.
Frequently asked questions
Are debt relief companies legit?
Many are, but the industry has bad actors. A legitimate company won't charge fees until a debt is settled, keeps your savings in an account you control, explains risks like credit damage and taxes, and never guarantees results.
Where can I report a debt relief scam?
You can report it to the Federal Trade Commission at ReportFraud.ftc.gov, the Consumer Financial Protection Bureau, and your state attorney general.
What's the difference between debt relief and credit repair?
Debt relief deals with what you owe. Credit repair claims to fix your credit report. No company can legally remove accurate, timely negative information from your report.
This article is for general educational purposes and isn't legal, tax, or financial advice. Talk with a qualified professional about your situation.
