How do you spot a debt relief scam?

Are they asking for money before doing anything?

This test needs no judgment about how good the service is. A company that sells a debt relief service by telemarketing may not request or receive any fee until it has renegotiated, settled, reduced or otherwise changed the terms of at least one debt under an agreement you have signed, and you have made at least one payment under that agreement.1

The FTC puts it bluntly: only scammers try to collect fees before they settle any of your debts or enter you into a debt management plan. A debt settlement company cannot collect its fees before it settles a debt, and money you set aside in a dedicated account, with any interest it earns, remains yours.2

What are the other warning signs?

The FTC and the CFPB list the same patterns again and again.

• A guarantee to settle all your debts or to get fast loan forgiveness.2
• Signing you up without first reviewing your financial situation.2
• Promised results from a "government" debt relief program.2
• Telling you to stop communicating with your creditors without explaining the serious consequences.2
• Saying they can stop all debt collection lawsuits.2
• A caller who demands immediate payment for a debt you do not recognize, threatens arrest, legal action or wage garnishment, will not send written proof of the debt, or wants payment by wire transfer, prepaid card or gift card.3
• For mortgage help: being asked to pay upfront, a guarantee that your mortgage terms will be changed, or instructions to send your payment to someone other than your mortgage company.4
• For credit repair: a promise to remove accurate information from your credit report, to create a new credit identity or to hide a bankruptcy.5

How do you check a service connected to bankruptcy?

Bankruptcy has its own rules for the businesses around it, which gives you something concrete to check.

Is debt settlement itself a scam?

Not necessarily, but it carries risks even when the company is honest. In a debt settlement program a company negotiates with your creditors to accept a lump sum that is less than what you owe, while you set money aside each month. These programs often encourage you to stop paying your creditors.2 13

While you save, late fees and interest keep growing, creditors may step up collection or sue, and your credit is likely to be damaged. Creditors have no obligation to agree to a settlement, the process can take years, and the CFPB warns that debt settlement may leave you deeper in debt than when you started.2 13

There can also be a tax bill. In general, when a debt is canceled or forgiven for less than the amount owed, the canceled amount is taxable.14 2

Can anyone clean up your credit report for a fee?

No one can legally remove negative information from a credit report if it is both accurate and current. The FTC says it is illegal for credit repair companies to lie about what they can do or to charge before they help, and that anything a credit repair company can do legally you can do yourself for little or no cost.5

How do you check a company, and where is the real help?

Before you pay any debt relief or credit counseling company, the FTC suggests checking it with your state attorney general and your local consumer protection agency.2

• Search the company's name with the word complaint or review, and ask whether your state requires such companies to be licensed and whether this one is. No complaints on file is not a guarantee.2
• For credit counseling, a reputable organization sends you free information about its services before you share any details, does not charge in advance for help it has not given, and gives a specific written quote for its fees. Nonprofit status alone does not guarantee that an organization is affordable or legitimate.2
• For a mortgage problem, HUD-approved housing counseling agencies provide foreclosure prevention counseling free of charge.15 16
• For legal questions, USA.gov lists legal aid for people with low incomes, law school programs and a service where a lawyer answers questions online.17
• For your creditors, you can call them yourself for free and ask for a payment plan you can manage.2

What can you do if you already paid a scammer?

Act quickly. These are the steps federal agencies describe.

1. If you paid by credit card, report it to the card issuer immediately and ask for a refund.18
2. If you paid with a gift card, contact the gift card issuer immediately, tell them a scammer got the card number and PIN, ask for a refund, and keep the card and the receipt.18
3. Report the company to the FTC at ReportFraud.ftc.gov, to your state attorney general and to your local consumer affairs office.2
4. If someone is collecting a debt you do not recognize, ask for written proof of the debt before paying anything. Under the Fair Debt Collection Practices Act you can dispute a debt and ask for verification.3