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Debt Reduction Scam?

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Daniel Cohen
UpdatedMay 14, 2024
Key Takeaways:
  • Avoid lead generators, as they don't work on your case.
  • Look for AFCC and IAPDA membership.
  • Work with a company that has a long track record helping clients.

Are the debt reduction ads on TV that promise to consolidate debt scams?

I see TV ads for debt reduction companies that promise to consolidate debt. But when I look for these companies online, they seem to be scams -- there is nothing there. Why do the TV networks allow this? How do these scams work?

As I write the words, there are several television advertising campaigns on the air promising to help viewers consolidate debt. The companies promise debt reduction, and may use images of President Obama or celebrities. You need to be a sophisticated consumer to find the right firm to assist you to not fall prey to a debt reduction scam.

Lead Generators Don't Work on Your Case

The companies behind these ads will not themselves provide debt relief. The companies behind these ads do what people in the marketing field call 'lead generation.' Lead generators collect the names of people who need a product or service using TV or radio ads, Web sites, or other means, and sell the names to service providers. This raises the question, "Should a person distressed by debt respond to one of these ads or go to a debt consolidation company directly?" A simple question, right? Not really.

One reason that it is not so simple is that by leaving your name with a lead generator, you may still end up speaking with a firm that handles the entire debt settlement negotiation process on its own. Another reason is that simply finding a debt settlement provider that handles all of its negotiations, program sales, and customer support services internally, does not mean you will find a quality and reputable debt settlement provider.

I have a prejudice against choosing a lead generation firm, because I prefer knowing with whom I am working, especially if the conversations involve my private account numbers and Social Security number! I don't want to hire a firm only for that firm to farm out the actual case work to a third party that I don't have a chance to investigate.

Choose the Best Debt Settlement Firm

I will lay out some things I would look for, were I selecting a debt settlement firm to help me achieve debt relief. I will restrict my comments to finding a reputable debt settlement firm, leaving out consumer credit counseling services, bankruptcy, and debt consolidation loans as debt relief options. Please explore the wealth of information about all your debt relief options by reading the white paper on debt.

When it comes to debt settlement providers, there are good players and bad players, the way there are in any industry. It is important to do your research, so you find the right firm to assist you and avoid debt reduction scams.

Quick tip

Contact one of's pre-screened debt providers for a free, no-hassle debt relief quote.


The American Fair Credit Council (AFCC) is the leading industry trade group in the debt settlement industry. AFCC members are required to follow a strict code of conduct, which is strictly monitored and enforced by the AFCC.

As the AFCC explains, the "AFCC is ONLY for those willing to abide by the AFCC's new Code of Conduct that emphasizes full compliance with the federal and state rules regulating what we do. There is now a bright line between good actors - and bad." USOBA, another debt settlement industry trade group, does not require its members to comply with the FTC rules, such as not charging customers upfront fees, so does not recommend any USOBA member debt settlement firms. Don't be scammed by a debt settlement firm that charges upfront fees!

FTC Rules

AFCC members must remain fully compliant with the rules issued by the Federal Trade Commission that regulate the debt settlement industry that went into effect in October, 2010. These rules were created to protect the consumer. For instance, anyone now enrolling in a debt settlement program is not required to pay a service fee to the settlement firm until his or her account has been settled. This makes settlement an even more attractive option for the consumer.

Pointedly ask any debt settlement firm you speak with if they are compliant with the FTC rules. If anyone expects you to pay a fee up front, you should look for help elsewhere.

AFCC Mystery Shopping

The AFCC 'mystery shops' its members. Mystery shopping is where the AFCC contacts a member and acts as a consumer. The AFCC then grades the member on how it represents its services. Some debt settlement companies have been barred from the AFCC for failing to meet the requirements of proper disclosure not only on paper, but also on the telephone (which is the most common way consumers enroll).

Membership Tiers

There are 2 tiers of membership (Regular Member and Accredited Member). Accredited Members must go through a thorough onsite audit (sales, marketing, customer service, negotiations department, HR, etc.) every year conducted by BSi Group to make sure company is complying with the AFCC Code of Conduct, including full compliance with FTC Rules.


Another effective step for finding a reputable debt settlement / resolution company is to determine if the company is a member of the International Association of Professional Debt Arbitrators (IAPDA). The IAPDA requires that its members have their debt consultants and account executives pass a certification test that requires them to understand and communicate the pros and cons of debt settlement to their clients.

Basic Questions

Finally, ask a few basic questions. Find out how long the firm has been in business. A long history is good because a company with long history will have experienced underwriters and negotiators who have demonstrated an ability to negotiate effective settlements with a variety of creditors.

Be wary of over-promising. If any firm assures you that every case comes out the same, that each account is settled for 40 cents on the dollar, or that you are fully protected from harm while in their program, you can be sure that the firm is not trustworthy.

If you follow the steps above, you will find a quality firm to assist you and avoid becoming the victim of a debt reduction scam.

I hope this information helps you Find. Learn & Save.



Struggling with debt?

Debt is used to buy a home, pay for bills, buy a car, or pay for a college education. According to the NY Federal Reserve total household debt as of Q4 2023 was $17.503 trillion. Auto loan debt was $1.607 trillion and credit card was $1.129 trillion.

According to data gathered by from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 8% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.

Each state has its rate of delinquency and share of debts in collections. For example, in Iowa credit card delinquency rate was 3%, and the median credit card debt was $425.

To maintain an excellent credit score it is vital to make timely payments. However, there are many circumstances that lead to late payments or debt in collections. The good news is that there are a lot of ways to deal with debt including debt consolidation and debt relief solutions.