Signs of Debt Settlement Scams to Watch For

Quick Answer

Signs of debt settlement scams to watch out for include unsolicited debt relief robocalls, requests for upfront payment, guarantees of results, big promises and a lack of clear explanation about the potential effects of debt settlement on your credit.

A woman on her cellphone avoiding a debt settlement phone robocall.

Debt settlement scams target consumers who are struggling with debt. Scammers falsely promise that they'll help you negotiate with creditors to settle your debts.

Debt settlement works by withholding payments to lenders while a company negotiates on your behalf to reduce the overall payment. It will damage your credit score due to these late or missed payments, but could reduce what you owe overall. However, if it turns out you're working with a debt settlement scammer that isn't even working to negotiate with your lenders, you could be in serious trouble.

What Are Debt Settlement Scams?

Debt settlement scams may appear to be legitimate debt relief companies at first. But these scammers are generally after your private information or even upfront payments. They can use this information to steal your identity and take off with the cash without helping you reduce your debt.

Not every debt settlement scam looks the same. Some might be on websites that appear highly professional. Others may come from a robocall that asks you to press a number and get connected to a debt settlement program.

Debt scams may even masquerade as special "government" programs to relieve debt. But they're all after one thing: to profit off your vulnerability. You can protect yourself by knowing how to spot scams.

Signs of a Debt Settlement Scam

If you're already in a difficult debt situation, learning the red flags of a debt settlement scam can protect you from further disaster. Some of the most noticeable red flags include:

  • Robocalls: Robocalls, or recorded phone messages, are often a sign of a scam. This is especially true when it comes with an unsolicited offer of debt relief.
  • Upfront payments: If a debt relief company asks for an upfront payment, this is a strong sign it is a scam. It is not legal for debt settlement companies to ask for upfront payments.
  • Guarantee of results: Any guarantees about results, such as achieving a specific credit score, are a red flag. Debt settlement is a risky move and results are not guaranteed.
  • Leaning into "government programs" or other legal-sounding terms: Scammers will do anything to sound more legitimate, including claiming government affiliation. Though they may cite government programs or legal loopholes, their claims are likely false.
  • Too many promises: Even legitimate companies that help with your debt can't promise to get results or stop calls from debt collectors or legal professionals. Too many promises are a bad sign.
  • Offers of enrollment without looking at your documents: A legitimate company should take time to look over your situation before agreeing to work with you. If you get an offer for help without having your financial documents reviewed, put on the brakes.
  • Minimal explanation of the consequences: Debt settlement is often considered a last resort before bankruptcy because it almost certainly will do serious damage to your credit score.

Even if the debt settlement company you're considering is legitimate, debt settlement isn't usually the best option. Debt settlement can damage your credit throughout the process because you stop paying your bills. It often comes with big risks and few rewards.

How to Avoid Being Scammed

Beyond learning to spot the signs of a debt settlement scammer, there are some proactive steps to take to avoid getting scammed. These may include:

  • Choosing a reputable nonprofit credit counselor: If you need assistance paying off your debt, seek a reputable nonprofit credit counselor. They may help you set up a debt management plan, consolidating your debt into a single monthly bill and charging low fees. A debt management plan is not the same as debt settlement, and typically has less effect on your credit.
  • Not answering unsolicited phone calls or emails: If you didn't reach out to anyone about debt settlement, there's no reason to respond to a phone call, email or even text message about it. Scammers often use these methods in phishing plots.
  • Working directly with your lenders to make payment plans: There's not always a need for a middleman to tackle your debt. If possible, try to work with your lenders to make payment plans to pay off your debt directly. This way, you don't open yourself up to possible fraud.
  • Only pay through common means: When you do make a payment to a credit counselor for debt relief help, it should be through a familiar payment method. These ways may include credit card payments, checks or online payment providers. Companies that request payments through gift cards or peer-to-peer payment apps such as Zelle may not be legitimate.

It's never a victim's fault that they've been targeted. But there are some steps you can take to protect yourself against being scammed. Just like locking your door at night may protect you from burglars, making these behaviors a habit can protect you from debt settlement scammers.

The Bottom Line

If you are considering debt settlement, you are likely already in a financially vulnerable place. Scammers know this and may use it against you. But if you know how to spot the signs of a debt settlement scam and some ways to avoid being scammed, you're that much farther ahead of them.