Debt Relief / Company

How Do Debt Relief Companies Work? 4 Things You Need to Know

Written by Ben Tejes
Updated May 17th, 2024
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Debt relief (also known as debt settlement) has had a bad reputation for many years, and for good reason. Debt relief companies charged large upfront fees without actually settling debt. Even now, there are many people who have not had bad experiences with specific debt relief companies

The Federal Trade Commission in 2009 proposed to amend the Telemarketing Sales Rule to prohibit collecting or charging fees upfront because the practice became so abusive. Thankfully, in 2010, Congress passed the Dodd-Frank Act to protect consumers from unfair and deceptive practices by debt relief companies. 

The Basics of a Debt Relief Company

A debt relief company works with you and your creditor(s) to negotiate a lower payment balance. It also guarantees that the creditor receives that your payments in a timely manner. Debt relief is really for those who cannot continue to afford their debts in the current state. 

It is not for those trying to evade paying their debt.

This shows when debt relief may be right for someone and when it is not right for someone.

How Much Does Debt Relief Cost?

One of the biggest differentiators between debt relief companies is the cost of the debt relief company. 

For example, if someone is offering the same service at 20% of enrolled debt vs 35% of enrolled debt, I would question why the other company is charging such a high amount. 

As such, we built a debt relief cost calculator below that helps you estimate the cost based on what we believe is a reasonable fee and you can also access free evaluations from the only 3 providers that we work with in terms of referrals.

What Can I Find Out About the Company I am Reviewing?

Although the debt relief industry witnessed many improvements, debt relief players with red flags still exist. How do you know if debt settlement is right for you?  If it is, how can you choose a reputable company to work with?

For examples, reviews show that the company pitches emergency debt relief. Do people get this confused as a government associated with relief? Or, Turbo Debt has ads on TikTok that mention that your credit score won't be affected and you won't have to pay it back. 

Be sure to perform a thorough review of any Debt Settlement company you are considering working with. For example, check Credit Associates reviews if you are planning to work with them.
Reading customer reviews from unbiased sites that will help you determine who to work with. See if you can schedule a free consultation with a representative. Here's some other reviews to consider:

As you get to know some different organizations, here are some questions you should ask before joining forces:

  • What are the Pros & Cons’ of Debt Settlement? 
  • What is an Accurate Estimate of my Potential Savings after Fees?  
  • How do you Charge for Your Services?
  •  Will my Credit Score be Affected?
  • What is the Likelihood of Being Sued by my Creditors?
  • Do you Have a Document Containing Terms of Service? 
  • What can I Read to Better Understand my Financial Situation? 
To aid in your research, let's go through a list of "Green Flags" and "Red Flags". Another thing to consider is debt consolidation companies that are BBB accredited.

Green Flags

Now that you have asked some of the hard questions, it’s important to find a company that has your best interest as their first priority. You’ll potentially be working with the Debt Settlement company for months, and dealing with thousands of dollars.  As a result, it’s vital to team up with someone you can trust. Here are some key characteristics of a good Debt Settlement company that you can check for: 

1)  Honesty About the Pros & Cons of Debt Settlement

 There’s no easy fix when it comes to Debt Relief. Working with an experienced company is a good step toward securing a lower balance on your debt.  However, there are obstacles and risks, and pros and cons.  Pros in pursuing debt relief include saving money, getting on a single payment plan for all your debts, and ending debt collector calls. There are also cons such as the credit score impact, potential tax implications and chance of lawsuit. Some companies are not as forthcoming. For example, some individuals wonder if Freedom Debt Relief lies or whether National Debt Relief will screw me.

2)  Thorough Analysis of Your Debt & Credit Score

One risk in using Debt Settlement tactics is the potentially damaging impact it may have on your credit score. A good Debt Settlement company will consider your current credit score, your credit history, and the amount/type of debt you hope to settle. With this information, they should give you an idea of how debt settlement might impact your credit score. 

3)  Provides a Free Estimate of Costs & Savings

It’s important to note that any initial consultations or analysis of your financial situation should not cost you anything. A good working relationship begins with sitting down or having a detailed phone conversation with a Debt Settlement representative. Look for a company who is willing to thoroughly discuss your options and provide accurate estimates - free of charge. 

4)  Reasonable Fees (We recommend less than 20% of enrolled debt)

Debt Settlement companies have slight differences in how they charge for their services. Some companies charge a flat fee for their services. However, most charge a percentage of either the amount you enroll or the amount your debt is reduced when working with them. How much you should have to pay? We recommend a reasonable amount would be 20% or less of your enrolled debt. Make sure you find a company that charges fairly for their services.

5)  Educates You as the Consumer  

Before jumping into a solution like Debt Settlement, it’s important to do your homework. Reading reviews, comparing prices, learning about different tactics, can all help you make an informed decision. A good company will want to educate you and give you unbiased information. Look for individuals who love to teach and discuss multiple options to find the best fit for your situation. 

6)  Willing to Recommend Other Options & Services

After an in-depth meeting and lots of questions, you may realize that the company just isn’t right for you. The ultimate test of a reputable Debt Settlement company is their willingness to recommend other options or services that don’t earn them any money, but better help your situation. Honesty, this says a lot about a company’s credibility. 

Potential Red Flags

While analyzing a Debt Settlement company, it's important to lookout for misleading claims and potentially dangerous situations. Despite regulations and accreditation programs, scammers still abound. If you come across any of these situations while interviewing with a Debt Settlement company, beware!

1) Doesn't do a full analysis of your options

There are alternatives to debt relief. A debt relief company should review your financial situation and provide the best solution. Too often the goal is to pigeon hole you into debt relief when a better debt relief (or no debt relief solution) is right for an individual because the salesperson's commission depends on it. This is wrong. There is a free comparison tool. Although it's used for bankruptcies, this tool allows you to compare all debt relief options.  It also helps determine your plan payments and compare pros and cons to the different actions. 

What is the most egregious case of this that we see? Not doing this full analysis for someone who is currently NOT behind on his or her payments. It can be less detrimental for someone to enroll in debt relief when they are already behind on their payments, but it's very important to  double check that debt settlement is right for you when you are not behind.

2) Has Amazing Review Only On Biased Review Sites

We see this over and over again that consumers are directed to paid review websites that point people to debt relief companies, with the top ranking going to the one that produces the most money for the website. 
How do you know if a website is biased? The trick is to take a closer look at the destination URL? If the website has a great deal of language after the initial URL (/aff/ffd-3/pid=2342Adfsd@#$23&dkd_campaign_ id=23...) than it is probably a paid link. Paid referrals are by no means wrong, but we do not believe that the amount that you pay in total for customers determines how well you will actually take care of those customers.

What we believe are more unbiased:

  4. Google Reviews
Not surprisingly, many of the review sites such as Yelp don't have a financial incentive to have a good review for a debt relief service. So, you can type ""debt relief company you are researching" Yelp", and you would be able to see the reviews for that debt relief company. Please note that some of the smaller debt relief companies may not have reviews on some of these sites.

3) Pushy Sales Tactics

Choosing to go up against a bank or credit card company is a big decision. You need someone guiding you who is helpful, honest and informative. You do not need someone who is pushing you to make a decision quickly, or is primarily concerned about sales quotas. Find a business that wants to educate and serve you and avoid businesses that want you to commit immediately with little/no information.

4) Upfront Fees

If a debt settlement company requests payments before any results are produced, they are breaking the law. A stipulation was put into place a few years ago requiring that you as the client must agree to a proposal and ratify that agreement by making an initial payment to the creditor before any payment can be levied by the Debt Settlement company. If you have paid for debt settlement services that were never provided, you should report the situation.  

In 2024, CFPB and 7 state attorney generals sued Strategic Financial Solutions because it took upfront fees from facade law firms.

5) Promotes Debt Relief as a Debt Consolidation Loan 

 There are too many companies that pitch a debt consolidation loan, only to push you down the debt settlement route. These companies often provide ambiguous mailers that make you believe that you are applying for a debt consolidation loan, only to have debt settlement as the option on the other side. Beware of companies such as these as we consider these as bad business tactics.

You may find that you received a debt consolidation letter from Americor that looks like a debt consolidation loan, only

 6) Only Mentions the Positive Outcomes

 Good salesmen are great at promoting their service and focussing on the positive outcomes of working with their business. However, honesty about the pros and cons of Debt Settlement is a must. If the company you are considering provides no information about the possibility of creditors suing, damage to your credit score, or the potential taxes you’ll have to pay if you are tax solvent as defined by IRS, you should probably look for a better teammate. That said, many people would like to avoid paying taxes on settled debt legally.

 7) Unclear About the Amount of Potential Savings

 A good Debt Settlement organization should have plenty of experience with different types of debt situations as well as the habits of different creditors. It’s important for you to have a good understanding of how much money you will likely be paying and how much money you are likely to save. If a business representative can’t give you a clear estimate on either of these statistics, you should look for someone who has more experience. 

8)  Enrollment Despite a High Likelihood of Lawsuit

When you engage in a debt settlement plan, there is some risk of being sued for defaulting on your payments. Your likelihood of being sued is tied to how much debt balance you are carrying, if you are behind on your payments, the past actions of the creditor you are dealing with, and several other important factors. A good Debt Settlement company will work to mitigate those risks by communicating with your creditors. They should also know whether the risk is too high to even try. Make sure the company is willing to talk openly about your risks and beware if they push enrollment regardless of the threats. 


Debt relief can be a great avenue to receive the debt relief that you need, but finding a great debt relief company can be quite the hunt. Ask plenty of questions and be on the lookout for positive and negative characteristics in the company. Once you are able to settle on a reputable, helpful and skilled organization, you should have an excellent chance of reducing your debt and saving money. 

It's also important to note that there are alternatives to debt settlement. Eliminating all of your debt may seem impossible, but there are several proven methods for bringing your debt situation to a healthy resolution. Solutions range from creating a debt-destroying budget, to Debt Management to filing for Bankruptcy. The severity of your debt situation will determine which method you’ll want to pursue. 

You may also be interested to reach out to your state's consumer protection office or your state's attorney general  to see if there are any issues with the company you are analyzing.

What is Ascend?

Ascend is a mission-based comparison debt relief provider. We do recommend only 3 debt relief providers. We also offer free advice to folks who are considering such forms of debt relief as bankruptcy, debt settlement, debt management and doing it yourself. We built a debt relief comparison calculator (below) to help people understand and compare all the debt relief options such as debt management, debt settlement, debt payoff planning, Chapter 7 and Chapter 13 bankruptcy. Use our Debt Relief Calculator below to explore what options you may have or give us a call at 833-272-3631.