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How To Avoid Debt Relief & Credit Repair Scams

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In a Nutshell

Debt relief scams aren’t always easy to spot. However, they have several traits that usually indicate they’re a scam: - The scammer contacts you first. - They charge an upfront fee. - They won’t provide a written contract. - They ask you to stop communicating with your creditors. - They make exaggerated promises, such as instant student loan forgiveness or overnight credit repair. To avoid falling for a scam, research potential debt relief companies online or skip the research and work with an accredited nonprofit credit counseling agency.

Written by Curtis Lee, JDLegally reviewed by Attorney Paige Hooper
Updated September 25, 2023

Debt Relief & Credit Repair Scams: Warning Signs To Detect Scammers 

Most debt relief scams work in one of these two ways:

  • The scammer promises to help you with your debt for a significant upfront fee. Then, after you pay, they run off with your money. 

  • The scammer helps reduce some of your debt, but the fees you had to pay, along with new interest and penalties, far outweigh the debt relief you got.

Keep an eye out for the signs listed below to help identify and avoid dishonest debt relief providers. 

They Contact You First 

There’s nothing wrong with reaching out for help with debt relief if you need it. But if you’re contacted by a debt management organization or debt relief company that you didn’t reach out to, be cautious. 

Many scammers reach thousands of people at a time through robocalls using pre-recorded messages. If someone contacts you out of the blue, saying they can help you with your debt, ignore them.

They Ask for Upfront Fees

This is one of the quickest and easiest ways to spot a debt relief scammer. According to the Federal Trade Commission’s (FTC) Telemarketing Sales Rule, it’s illegal for a debt relief services telemarketer to ask for upfront payment. Some states, such as North Carolina, also have laws that prohibit pre-payment for debt relief services.

There’s No Valid Written Contract

An authentic debt relief company will disclose all of its terms and conditions in a written contract. Scammers, on the other hand, will often refuse to explain their fees and full terms or put them in writing.

You should also keep in mind that a written contract doesn’t guarantee that the debt relief service is trustworthy. A scammer may provide a shady written contract in the hope that you won’t read it or ask to change any of its terms. In particular, watch out for contracts that seem extremely one-sided or contain spelling and/or grammar mistakes.

They Tell You To Stop Communicating With Your Creditor

Debt relief scammers may claim they can only help if you stop communicating with your creditor and/or stop making payments. These are major red flags. The scammer might say that this will convince your credit card company or other lenders to accept a partial payment of your debt.

It’s important to keep an open line of communication with your creditors and continue making monthly payments (if possible) for several reasons:

  • Missing monthly payments will hurt your credit score.

  • Not paying or informing your creditor of payment issues puts you at risk of additional fees and penalties, which can cause your debt to balloon.

  • You can be sued for past-due debt, which can lead to serious consequences like wage garnishment or a bank account levy.

They Make Exaggerated or Unrealistic Claims

Scammers may take advantage of your distress by making unrealistic promises to make your debt disappear overnight or fix a bad credit score for a fee.

Keep in mind that debt relief companies and scammers can’t force creditors to do anything. This means they can’t promise that a creditor will forgive or reduce a debt.

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How Do You Check a Debt Relief Company’s Credentials?

Before you hire a debt relief company or sign a contract, check it out to make sure it’s legit and trustworthy. There are several ways to do this:

  • Do a basic internet search for the company name and see what comes up. 

    • Look for independent and customer reviews.

    • See if any scam alerts come up as well.

    • See if the company has a legitimate physical address.

  • Search the Better Business Bureau (BBB). If a company’s trying to scam you, it probably isn’t accredited with the BBB. The BBB also has a scam tracker that allows you to look up and report scams online.

  • Check with your state attorney general’s office. State attorneys general can help you see if a company has received complaints from other borrowers.

  • Search the Federal Trade Commission (FTC) website for prior complaints or to see if a debt relief agency has been banned.

If you conclude that a so-called debt relief company is a scam, don’t hesitate to report it to the FTC or your state attorney general’s office. The Consumer Financial Protection Bureau (CFPB) is also a great source of information about how to avoid debt relief scams.

How To Protect Yourself & Get the Debt Relief You Need

Being in debt can be incredibly stressful. If you feel like you’re in over your head, there’s no shame in getting some support. Nonprofit credit counseling agencies are a great place to start.

Credit counselors can help you learn more about your debt relief options. Since they are certified by the National Foundation for Credit Counseling and held to national standards for professionalism and ethics, you won’t have to spend hours researching their credentials to make sure they’re legit. 

Credit counselors will go over your personal finances, budget, and debts to see which debt relief option will work best for you.

Here are some of the debt relief options they might recommend.

Consider Debt Consolidation

With debt consolidation, you can pay off two or more debts by taking out a new consolidation loan, hopefully with a lower interest rate. The goal is to make your monthly payments more manageable and affordable. This debt relief strategy is commonly used to tackle credit card debt, but it can also be used for personal loans or even student loans

If you’re able to consolidate several high-interest loans into a single loan with a lower interest rate, you’ll pay less in the long run. However, sometimes this results in a higher monthly payment, so you’ll want to weigh the benefits and drawbacks of debt consolidation before moving forward.

Debt consolidation scams are less common than debt settlement and credit repair scams. But again, look for the red flags listed above if you seek third-party help with debt consolidation from someone other than a certified credit counselor.

Make a Debt Settlement Offer

Debt settlement allows you to pay off one or more debts for less than the total amount you owe. The tradeoff is that you usually have to make one lump-sum payment. It’s also worth considering that you may have to pay income tax on the debt that’s forgiven.

Because you usually need a lump-sum payment to successfully settle a debt, this option is out of reach for some people, but if you come into a windfall (such as an inheritance, tax refund, or work bonus), this may be a good strategy.

You can negotiate a debt settlement yourself, but if you feel uncomfortable doing so and want to pursue outside help, be vigilant and do your research on debt settlement companies.

Set Up a Debt Management Plan

In a debt management plan (DMP), you hire someone to negotiate down the interest rates on your current credit card and other debt and make a payment plan to tackle your debts. Then you make one monthly payment to the person administering the DMP.

It’s common for DMP administrators to charge an administrative fee for the service. This may be a flat fee or a percentage of the debt in the DMP. If you’re working with an accredited credit counselor, this fee should be reasonable. 

Debt management plans can be helpful because they streamline your payments. You won’t have to keep track of multiple credit card payments or creditors. Plus, you get the support of a plan administrator who oversees the repayment plan. 

Credit counselors often offer this service, but you may also see for-profit companies offer a similar service. If an agency reaches out to you offering a debt management plan, look out for the red flags listed above and be sure to do your research before agreeing to anything.

File Bankruptcy

Bankruptcy is the ultimate form of debt relief for many people. Thanks to the automatic stay, creditors and debt collectors must stop collection activities as soon as you file bankruptcy. Plus, Chapter 7 and Chapter 13 cases can often wipe out eligible consumer debts like credit card debt, medical bills, personal loans, payday loans, and even federal student loans (though there are some additional hoops to jump through).

On the downside, bankruptcy can hurt your credit score and will stay on your credit report for seven or 10 years (depending on which type you file). That said, missed payments also hurt your credit score, and creditors can’t continue reporting missed payments once you file bankruptcy.

Speaking with a credit counselor or a bankruptcy attorney can help you decide if bankruptcy would work well for you or if another debt relief option could put you on the path to financial well-being with fewer consequences. Most bankruptcy attorneys offer free initial consultations.

Repair Your Own Credit

Your credit score impacts your ability to get loans and credit cards. Lenders also look at your credit history and credit score when determining what interest rates to offer you. Having good credit can save you money in the long run. This is why many people want to know: How do you repair your credit if your score is bad?

The truth is that credit repair takes time and effort. You can rebuild your credit score even after the worst financial disaster. But there’s no magic way to get negative information, like missed payments, erased from your credit history if it’s accurate. You’ll have to wait for it to age off of your report. The good news is that it won’t impact you forever.

That said, it’s important to monitor your credit report to make sure it’s accurate. You can get a free copy of your credit report annually. Check it for negative information like missed payments, accounts sent to collections, and loans in default. If any of that information is incorrect, dispute it.

Credit scoring is a private industry, and the exact formulas used to calculate scores aren’t available to the public. As a result, credit scoring remains cloaked in secrecy for most consumers, which makes credit repair particularly appealing to potential scammers. Keep in mind that legitimate scoring changes take time. Be wary of any company that offers to remove negative information from your credit report or increase your score overnight — it’s likely a scam.

Know Your Options for Student Loan Debt

Millions of Americans have student loan debt. With all the recent changes and talk of loan forgiveness, the number of scam phone calls for student loans has risen in recent months. 

The best source of information for federal student loans is You can also contact your loan servicer directly to ask about repayment options. Most people qualify for income-driven repayment plans, including the new SAVE plan, which has brought some borrowers' payments down to $0/month and effectively eliminated monthly interest charges.

The CFPB recently released a list of warning signs for student loan scams, including:

  • Upfront fees 

  • Promises of immediate debt cancellation or loan forgiveness

  • Credit repair guarantees

  • Demands to sign a third-party authorization form

  • Requests for personal information like your FSA ID and password

If you get a phone call from someone who says they are from the Department of Education or a company that can help with student loan cancellation or forgiveness, do your homework and make sure the company is legit before paying for services or giving out your personal information.

Written By:

Curtis Lee, JD


Curtis Lee is a writer and co-owner at Marvel Hill Freelance. Curtis earned his Bachelor of Science in Business from Wake Forest University and his Juris Doctor (JD) from Villanova University School of Law. After graduating law school, Curtis had the honor of clerking for a stat... read more about Curtis Lee, JD

Attorney Paige Hooper


Paige Hooper is a seasoned consumer bankruptcy attorney with 15 years of experience successfully representing debtors in Chapter 7, Chapter 11 and Chapter 13 cases. Paige began practicing bankruptcy law in 2006 and started her own solo, multi-state bankruptcy practice in 2012. Gi... read more about Attorney Paige Hooper

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