When you’re drowning in debt, the promise of quick relief can feel like a lifeline. But if an offer seems too good to be true, it probably is. Scammers know how to exploit your stress and use slick pitches to take your money.
Every year, millions of fraud cases are reported to the Federal Trade Commission (FTC), and debt relief scams are a common theme.
From fake student loan forgiveness programs to shady credit repair services, these scams can drain your bank account, steal your personal information, and worsen your financial situation.
The good news? You can protect yourself by recognizing the warning signs and choosing safer, legitimate ways to manage debt. Let’s break it down step by step.
What are debt relief scams?
Debt relief scams are schemes designed to trick people into paying for fake services or giving away personal information. These scams promise to lower or erase your debt but often leave you worse off—deeper in debt and struggling to recover from fraud.
Here’s what these scams might look like:
- Student loan forgiveness scams claim they’ll erase your student loans in exchange for a fee, often posing as government agencies like the Department of Education.
- Credit repair scams offer to remove negative items from your credit report, even legitimate ones, for a price.
- Debt settlement scams promise to negotiate lower balances with your creditors but demand upfront payments and fail to deliver results.
For example, you might get a call saying you’ve been “pre-approved” for a government debt relief program, but to qualify, you need to pay a processing fee. Once you send the money, the scammers disappear.
How to identify a debt relief scam
The FTC issued over $4.1 million in refunds to people affected by student loan debt relief scams in 2024. In the same year, the FTC stopped another debt relief scheme that had stolen more than $20.3 million from consumers after lying about being affiliated with the Department of Education.
Debt relief scams share many of the same red flags. If you spot any of these signs, it’s time to walk away:
Unsolicited contact
Did you get a random call, text, or email offering debt relief? Legitimate companies don’t reach out to you without a request. Be especially wary of robocalls or messages with generic greetings like “Dear Customer.”
Upfront fees
Under the FTC’s Telemarketing Sales Rule, it’s illegal for debt relief companies to collect fees before successfully renegotiating, reducing, or settling your debts.
If a company wants payment before helping you, it’s likely a scam. For example, someone might ask for $500 upfront to “secure your spot” in a special program. Legitimate companies only charge after successfully negotiating or settling your debt.
Too-good-to-be-true promises
Claims like “We’ll cut your debt in half!” or “Guaranteed approval, no matter your credit score!” are major red flags. No one can guarantee results without knowing your specific financial situation.
Suspicious payment methods
If you’re asked to pay with gift cards, wire transfers, or cryptocurrency, it’s a scam. These methods are nearly impossible to trace or recover once the money is sent.
Exclusive access to programs
Scammers might claim they have insider access to a “secret” government debt relief program. The truth? Legitimate programs, like income-driven repayment plans for federal student loans, are free and widely available.
How to avoid debt relief scams
1. Block unwanted calls
Use your phone’s spam-blocking features or apps to reduce scam calls. If you get an unsolicited call, let it go to voicemail. Scammers rarely leave detailed messages.
2. Research the company
If you’re approached by a debt relief company, search for reviews and complaints online. Use trusted resources like the CFPB complaint database or the Better Business Bureau to verify legitimacy.
3. Be skeptical of urgency
Scammers use urgency to pressure you. If someone says, “You must act now or lose this offer,” don’t take the bait. Pause, research, and think before making decisions.
4. Keep personal info private
Never share sensitive details like your Social Security number or bank account info with unsolicited callers or emails. Even clicking a link or replying to a message can confirm your contact info for future scams.
5. Report scams
If you suspect fraud, file a report with the FTC at ReportFraud.ftc.gov. This helps stop scammers and protects others.
6. Learn about legitimate debt relief options
Knowledge is one of your best defenses against scams. Improve your financial literacy and familiarize yourself with legitimate options for managing debt, such as nonprofit credit counseling or government resources like studentaid.gov for student loan assistance.
What to do if you’ve been scammed
Falling for a scam can feel like a huge financial mistake, but taking action quickly can limit the damage. Here’s what to do:
- Dispute fraudulent charges. Contact your bank or credit card provider immediately to dispute any unauthorized payments. Most financial institutions have fraud protection policies that can help recover your money.
- Report the scam. File a detailed report with the FTC and notify your state attorney general. Include any messages or receipts you received from the scammers.
- Freeze your credit. Place a freeze on your credit reports with Experian, Equifax, and TransUnion to stop scammers from opening new accounts in your name.
- Monitor your accounts. Regularly review your bank and credit card statements for suspicious activity. You’re entitled to a free credit report annually at AnnualCreditReport.com.
- Strengthen your security. If scammers have your personal information, update your passwords and security questions on financial accounts. Use strong, unique passwords and consider enabling two-factor authentication for added protection.
- Get legal help. If the scam caused significant financial harm, consult a legal aid service or consumer protection attorney for advice on recovering your losses.
Legitimate alternatives to debt relief companies
If you’re struggling with debt, there are safer and more effective options than using debt relief companies—many of which are free or low-cost:
- Debt consolidation. Consider a balance-transfer credit card or a debt consolidation loan to combine multiple debts into one, often with a lower interest rate and more manageable monthly payments.
- Hardship assistance. Reach out to your creditors directly. Many offer hardship programs like payment deferrals, fee waivers, or reduced rates.
- Nonprofit credit counseling. Work with a nonprofit credit counselor to create a debt management plan, develop a budget, and explore debt repayment strategies. You can also discuss ways of building wealth over time. Organizations like the National Foundation for Credit Counseling (NFCC) can connect you with certified counselors.
FAQs about debt relief scams
What are the most common debt relief scams?
Common scams include fake student loan forgiveness offers, fraudulent credit repair services, and companies claiming they can settle your debts for pennies on the dollar. These scams often require upfront payments or sensitive information but deliver no real assistance in helping you save money.
Can legitimate companies charge upfront fees?
No. Under the FTC’s Telemarketing Sales Rule, legitimate debt relief companies cannot charge fees until they’ve successfully settled, reduced, or renegotiated a debt on your behalf.
How can I verify a debt relief company’s legitimacy?
Check reviews, look up complaints in the CFPB database, and verify certifications like NFCC accreditation. Avoid companies that pressure you into decisions.
What should I do if a scammer contacts me?
Don’t respond. Hang up, delete the message, and report the scam to the FTC or your state attorney general. Never share personal information.
Are debt relief companies ever a good idea?
Legitimate debt relief programs can sometimes help, especially if you’re behind on payments and considering bankruptcy. However, they often hurt your credit before helping. In most cases, consolidating debt with a personal loan (ideally with a lower interest and more manageable monthly payment) is a less risky option.
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