How to avoid debt relief scams

A woman seated at a table uses a laptop and smartphone to read about how to protect herself from debt relief scams.Image: A woman seated at a table uses a laptop and smartphone to read about how to protect herself from debt relief scams.
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U.S. regulators have temporarily shut down a credit card debt relief operation that allegedly scammed customers by charging upfront fees and making phony promises to shrink or eliminate credit card debt altogether.

The alleged scammers took millions of dollars from victims while claiming they could clear up customers’ credit card debt, according to the Federal Trade Commission’s November 2022 lawsuit against ACRO Services and related companies.

The FTC warns that the debt relief and credit repair space is rife with scammers. That’s why it’s important to take a hard look at any debt relief organization before you decide to work with it — and to take precautions against bogus operations looking to take advantage of your financial troubles.

Key takeaway: If you’re considering getting help for debt relief, learn how to spot potential scams.

Should you use a debt relief company?

Reaching out for help with your debt can be the first step to getting your finances back on track. A legitimate debt relief program — whose goal is to decrease your existing debt through forgiveness or alternative payment plans — may be able to help you do just that. While there are legitimate programs (typically associated with government agencies), for-profit debt settlement or relief as a paid service can often turn out to be a scam.

Before considering a paid debt relief program, it’s a good idea to take a few steps on your own for little or no cost.

You’ll want to watch out for debt relief scams among companies making promises and asking for payment upfront.

Signs of debt relief scams

If you’re behind on your bills, you may be considering getting help. But watch out for unsolicited offers, especially from people who promise to pay off, settle or get rid of your debts. No one can guarantee that creditors will forgive your debts.

Be wary of debt relief that …

  • Requires upfront fees — It’s illegal for a debt relief company to make you pay a fee before it’s done anything to decrease your debt. While some firms try to charge monthly instead of one large fee, any upfront payment is illegal.
  • Promises to remove negative data from your credit reports — Scammers may tell you to dispute information in your credit reports — even if it’s accurate. Here’s the truth: No one can legally remove accurate negative information from credit reports. Only time can help with that.

Getting past credit troubles

As you work on your financial situation, the steps you’re taking should help improve your credit health. But it’ll take some time and effort. Here are a few practical habits that’ll help you make financial progress long term.

  • Review your credit reports regularly. If you ask for it, each of the major consumer credit reporting firms — Equifax, Experian and TransUnion — is required to give you a free copy of your credit report at least once every 12 months. You can also view your Equifax and TransUnion credit reports for free any time through Credit Karma.  Check for errors — they can keep you from getting favorable loan terms or from getting credit at all.
  • Focus on your finances. When at all possible, it’s best to pay your bills (at least minimum payments) on time and pay down your credit card or loan balances as soon as you can. If you’re working to improve your credit, you might want to consider a credit-builder loan, which allows you to make regular payments to a lender and then get the funds after the loan is paid off. You might also consider Credit Builder from Credit Karma Money™. Just keep in mind that it may not be available to everyone and that using credit builder products can adversely impact your credit depending on your payment history or other factors.

About the author: Brad Hanson is a senior editor at Credit Karma. His 30 years of experience in print and digital media includes work for the Los Angeles Times-Washington Post News Service, Trucks.com and Polyvore. Most recently before… Read more.