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How to Spot a Debt-Relief Scam: The FTC Red Flags

By CalculateBenefits Editorial Team · Reviewed by Mark Phaneuf, Publisher · September 2026

The clearest debt scam sign is a fee before any work is done. A debt firm cannot charge you before it settles or cuts a debt. This rule comes from the FTC.

Stop if a firm asks for money first. Also stop if it promises a sure result. No firm can force a lender or card firm to take a deal.

What are the main red flags?

• A fee up front. The firm asks for money before it gets a result.
• A sure promise. It says all debt will be gone or cut.
• A fake U.S. plan. It says a new government plan will pay card debt.
• No full money review. It signs you up before it sees your pay, bills, and debt.
• A rule to stop all calls. It tells you not to speak with your lenders.
• A claim that suits will stop. No debt firm can promise this.
• A call you did not ask for. The caller wants private facts right away.

Watch for the phrase “pennies on the dollar.” The CFPB lists this as a sales claim that should put you on guard. It is not a sure result.

Why is a first fee such a big deal?

The law says when a debt firm may charge. It must first reach a deal on at least one debt. You must agree to that deal. You must also make at least one payment under it.

Before you sign up, the firm must tell you:

• What it will charge
• How long the work may take
• How much you may need to save
• What can go wrong if you stop paying lenders

Some plans use a bank account to save for a deal. The account must be held by a third party. The money is still yours. You must be able to take it out.

What can go wrong with debt settlement?

A firm may tell you to stop paying your cards. Late fees may grow. The card firm may raise the rate. Your credit may fall. A lender may sue you.

A deal may also lead to tax. Part of a debt that is wiped out can count as pay for tax use.

This does not mean each debt firm is fake. It means you need the full risk in writing. A real firm will not hide it.

What does real help look like?

A credit guide should look at your full money picture first. It should send free facts about its work. It should list all fees in writing.

A guide may offer a debt plan. You make one payment to the group. The group then pays your card firms. The FTC says these plans can take 48 months or more.

You can also call a lender on your own. Ask about a lower rate or a new pay plan. That call is free.

If you plan to file for bankruptcy, use the U.S. Trustee list to find an approved guide.

What about student loans or a home loan?

For a U.S. student loan, start at StudentAid.gov. Its forms and pay plans are free.

For a home loan, use a HUD-approved housing guide. Do not pay a first fee to a firm that says it can save your home.

There is no secret debt plan for troops or vets. A caller may use a name that sounds tied to the armed forces. Check the name on your own.

What should I do if I spot a scam?

1. Stop the call or chat.
2. Do not send money or ID facts.
3. Save the ad, email, or phone number.
4. Report it at ReportFraud.ftc.gov.
5. Send a CFPB complaint if a debt firm harmed you.
6. Tell your state lawyer's office.

Applying for a real public benefit is free. No one can sell a sure “yes.” Check our benefit tool if lower bills may help your budget.