Is Debt Relief Legit?
- Legitimate debt relief companies adhere to strict laws governing how they operate.
- Companies that demand upfront payment or use pushy sales tactics are likely scams.
- Thoroughly research any debt relief company before handing over your money or personal information.
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Maybe you've heard about debt relief, and it sounds great—maybe a little too great? You want to believe these companies are legit, but you also want to make sure you're not getting scammed before you hand over money or personal information. This is a good instinct.
There are legitimate debt relief companies out there—including Freedom Debt Relief—that adhere to legal requirements and industry standards. But there are also scammers looking to make a quick buck.
Here's how to figure out which debt relief companies are out to help you—and which are flying red flags. Plus, find out what you should consider before enrolling in a debt relief program so you know what to expect.
What Is Debt Relief and How Does It Work?
Debt relief is anything that helps you better manage your debt. In most cases, though, people use debt relief to talk about debt settlement. This is when you negotiate with your creditors to settle your debts for less than you owe. In other words, you agree to pay a portion of your debt, and the creditor agrees to forgive the rest.
You can negotiate with your creditors directly, or work with a professional debt relief company. If you choose the latter, you usually start with a free consultation, in which an expert walks you through the process and helps you decide whether debt relief is right for you.
If you decide to go ahead, you make monthly deposits to a settlement account that you own and control. When you've saved enough to offer a settlement, the debt relief company negotiates with your creditors on your behalf. If the creditor agrees to a settlement offer, the debt relief company asks you for approval. If you approve, the debt relief company sends the agreed-upon amount to the creditor—and only then collects its fee.
You could see your first debt settled within a few months. It typically takes about two to four years to complete the full program, depending on how many debts you enroll.
How Legitimate Debt Relief Companies Operate
Here's a brief breakdown of what you can expect from legitimate debt relief companies:
Accredited by ACDR/IAPDA standards: Legitimate debt relief companies are accredited by either the Association for Consumer Debt Relief (ACDR) or the International Association of Professional Debt Arbitrators (IAPDA).
Licensed in your state: Check with your state attorney general or state regulator to learn if the debt relief company is licensed to operate in your state.
A+ rating with the BBB: The Better Business Bureau rates businesses of all types, and can give you insights into whether past customers are satisfied with a debt relief company.
Free consultation: Reputable companies usually offer free consultations to explain how the debt relief process works and help you determine if it's the right fit.
Transparent fees: Legitimate companies disclose how much they charge (often 15% to 25% of the enrolled debt).
Fees paid only after success: Legally, debt relief companies can't take any fees until they've successfully negotiated at least one debt, you've agreed to the settlement, and a payment has been made to your creditor.
Client control of the process: You decide whether to approve or deny each settlement offer.
Red Flags That Signal a Debt Relief Scam
The following telltale signs give debt relief scams away. Steer clear.
Upfront fee requests
Debt relief scammers typically request settlement fees upfront, which is against the law. They also like to ask for unusual forms of payment, like cryptocurrency or gift cards. These are more difficult to trace, making it easier for scammers to hold onto your cash. This is a huge red flag. Report the company to the Federal Trade Commission (FTC), the Consumer Financial Protection Bureau (CFPB), and your state attorney general.
Unsolicited contact
Legitimate debt relief companies advertise, and you reach out to them. Debt relief scammers may go after you directly, possibly even cold-calling you to see to hard sell or bully you into joining.
If you get an unsolicited call, text, or email regarding debt relief, there's a high likelihood it's a scam. Avoid disclosing your personal information or making any agreements.
Guaranteed results or too-good-to-be-true promises
The law prohibits legitimate debt relief companies from making promises about the results they can achieve or how much they can save customers. There can’t be guarantees, because creditors aren't legally required to negotiate your debt at all. It's up to each creditor.
Anyone promising you'll pay pennies on the dollar or that they can cut your bill down by a certain percentage are violating government regulations. This is likely a scammer trying to get you to hand over money and personal information.
Pressure to sign up immediately
Enrolling in debt relief is a big decision, and legitimate debt relief companies understand this. They want you to take your time and feel confident you're making the best decision for yourself.
Scammers don't want to give you time to think or do further research, because they don't want you to discover they're not a legitimate company. So they often come at you with high-pressure sales tactics to make you feel as if you have to make a decision immediately.
Don't let any company pressure you into a decision or agreement. Use your free evaluation to ask questions and get to know the company, then take time to consider your options before making a decision.
Claims about secret or exclusive government programs
Some debt relief scammers try to lure you in with the promise of a new or secret government program that can help you get rid of your debt. No such programs exist. Legitimate companies know this, and should be transparent about how the debt relief process works.
How to Verify Whether a Debt Relief Company Is Legitimate
Before you hand over money or personal information to a debt relief company, do the following things:
Check whether the company is accredited with the ACDR. You can do this on the ACDR website. This organization holds its member companies to industry standards.
Confirm that the company’s debt consultants are certified and credentialed. Look them up on the IADPA website, or ask for their credentials.
Check BBB reviews. Look up the company on the Better Business Bureau website to see its rating and read customer reviews. Steer clear of companies with poor ratings.
Read customer reviews online. Sites like TrustPilot are a great place to get insights into what customers think about their experiences with the debt relief company.
Verify that the company is licensed in your state. Check with your state attorney general to learn which debt relief companies are allowed to operate in your state.
If anything you come across gives you pause, you may want to explore other debt relief companies instead.
What to Consider Before Enrolling in a Debt Relief Program
Here are a few other factors to be aware of before choosing a debt relief program.
Debt relief programs work with unsecured debts
Unsecured debts are debts that aren't backed by collateral—something of value you own that the lender can take if you fail to pay. Credit card debt and personal loans are unsecured debts, so they could be eligible. Auto and home loans are secured debts and generally aren't eligible.
Debt relief typically cannot help with secured debt, because lenders are unwilling to settle for less when they can seize the collateral and make their money back by selling it. However, if you get some unsecured debts off your plate with debt relief, that may give you more cash to put toward secured debts.
Your credit may take a hit
Many debt settlement participants stop paying their creditors so they can save up for negotiations. This could lower your credit score. However, the difference might be small if you're already far behind on payments. In this case, getting back on solid financial footing may be the bigger priority. Once your debts are under control, you can work on rebuilding your credit.
Creditors may still pursue collection efforts
Enrolling in a debt relief program probably won't stop collection efforts. You could still get calls, letters, or even be the subject of legal action. But reputable companies often offer some type of legal assistance if a creditor tries to sue you for an enrolled debt.
At Freedom Debt Relief, if a creditor takes legal action against you for an enrolled debt, we may engage a Legal Partner Network attorney who will attempt to negotiate a settlement. This service is free for qualifying clients who have made their monthly deposits on time. The offer does not apply to legal action taken before you enrolled, or to legal action taken on debts that are not enrolled.
Take the Next Step Toward Resolving Your Debt
Once you've found a legitimate debt relief company you're interested in, gather information about your debts, including how much you owe, who you owe, and how far behind you are on payments. Share this information with the debt relief expert during your consultation. They should answer your debt relief questions and help you figure out the next steps to get back on the road toward financial freedom.
Author Information
Written by
Kailey Hagen
Kailey is a CERTIFIED FINANCIAL PLANNER® Professional and has been writing about finance, including credit cards, banking, insurance, and retirement, since 2013. Her advice has been featured in major personal finance publications.
Reviewed by
Kimberly Rotter
Kimberly Rotter is a financial counselor and consumer credit expert who helps people with average or low incomes discover how to create wealth and opportunities. She’s a veteran writer and editor who has spent more than 30 years creating thousands of hours of educational content in every possible format.
Is debt relief the same as debt settlement?
Debt relief is often used as a synonym for debt settlement. But it can also be an umbrella term for a variety of methods for getting out of debt, including debt consolidation and bankruptcy.
How do I know if a debt relief company is legitimate?
Legitimate debt relief companies are transparent about their process, don't charge settlement fees upfront, and offer free consultations. They also leave you in control of the process, asking you to approve or deny settlement offers.
First-hand referrals are often the best way to find a legitimate debt relief company. You can also do a thorough internet search of the company's history and reputation. Online reviews and consumer ratings can be helpful here. It might also be useful to check for membership in industry organizations, such as the Association for Consumer Debt Relief (ACDR), as well as look up the company's license to operate in your state.
Can debt relief hurt my credit score?
Yes, debt relief could hurt your credit score if you stop making payments to your creditors. But the difference may be small if you're already behind on your payments when you seek out debt relief.
How long does a debt relief program take?
You could see your first debt settled in a few months, though how long a debt relief program takes overall varies. It depends on how much you owe, how willing your creditors are to settle—and how much you can save each month for settlement offers. The average program takes two to four years to complete.
What types of debt can be included in a debt relief program?
Debt relief programs usually focus on unsecured debts like credit cards or personal loans. Auto and home loans, which are secured by collateral (your car or home), are usually not candidates for debt relief.