Debt relief can backfire, CFPB warns of hidden costs

The Consumer Financial Protection Bureau warns that many debt settlement companies tell consumers to skip payments, a move that can damage credit scores, trigger late fees and interest, and even invite lawsuits from creditors or collectors before any deal is reached.

Savings can disappear if a company does not settle all or most of a consumer’s debts, because penalties and fees on the unresolved accounts keep growing. Some debt settlement companies promise more than they can deliver, and some creditors may refuse to work with the company a consumer chooses, leaving borrowers with a suspended payment plan and no settlement.

The Federal Trade Commission’s Telemarketing Sales Rule amendments, which took effect on October 27, 2010, barred for-profit debt relief companies that sell by phone from charging advance fees before they settle or reduce unsecured debt. The rule also requires clear disclosures about costs, timelines, negative consequences and dedicated-account arrangements, and it bans misrepresentations about the service.

In July 2025, the FTC halted a debt-relief operation that targeted seniors, including veterans, and promised it could cut debt by up to 75% or more. In January 2025, the agency sent more than $5 million in refunds to consumers harmed by a credit card debt relief scheme. The FTC has brought scores of debt-relief and credit-repair enforcement actions and partnered with states on hundreds more lawsuits.

Nonprofit credit counseling is another path. The National Foundation for Credit Counseling says debt management plans are offered by nonprofit credit counseling agencies and are not loans. In 2025, the NFCC said household debt grew by $93 billion in the fourth quarter of 2024, with about half of that increase tied to credit card debt.