Why Debt Relief Is A Scam (and What You Can Do Instead)

Americans are still making this mistake.

Savings experts are surprised millions of Americans still don’t know the difference between debt settlement and debt consolidation in 2026.

Many people still fall for “debt relief” programs promising to completely wipe off your debt, despite there being so many horror stories.

Here’s how the process goes behind-the-scenes with a debt settlement company:

1. They get you by promising a lower payment.
2. After you sign up, they take your monthly payments and save that money in an escrow account (only after they’re finished collecting the initial fees).
3. They ignore your creditors and stop paying your credit card payments until you are officially in default, about 6 months to a year later.
4. They then negotiate your debt by offering a lump sum (out of the escrow account) to your creditor to settle as low as 20% of your debts.

When it’s explained like this it doesn’t sound too good, does it? But it gets worse:

These programs usually charge outrageous settlement fees — around 25%.

That means if you enroll in debt settlement with $30,000 in credit card debt, and you’re able to settle for $15,000, you might pay a settlement fee of $7,500 (25% of $30,000). This is on top of the $15,000 you pay to your creditors. Meaning altogether you’d pay $22,500 total.

It gets even worse:

• Ignoring your creditors will completely destroy your credit score.
• Your debt will increase due to interest and late penalties.
• You will pay taxes on your forgiven debt as it’s considered income.
• They cannot guarantee your debt will be resolved by the end of the program.
• Your creditors may reject the settlement and sue you.
• You will be on your own if you go to court, debt relief companies won’t help with that.

But you’ll never hear them talk about this in their commercials, just happy people and few details.

So how is debt consolidation better?

Debt consolidation is when you take a special loan to pay off all your high-interest debts, such as credit card balances and personal loans. The result?

A single lower monthly payment, at a lower fixed interest rate.

If you struggle to see your credit card balances go down, no matter how much you pay — it’s because credit cards have a very high interest rate (usually 29%), meaning what you pay is only going towards the interest instead of killing the actual debt amount.

With a lower rate, you will get out of debt way faster — even if you pay the same amount you were paying towards the credit cards.

Also, having just 1 payment instead of 5-10 payments in a single month will help you massively with your organization and budgeting.

It’s also better than paying off your smaller debts first, one by one. Remember that while you do that, your bigger debts continue to pile on interest (the true snowball).

Here’s how a debt consolidation loan helps you:

1. You get a loan to pay off your high-interest (usually around 25%) unsecured debts such as credit cards, personal loans, collection accounts, medical debt right away.
2. You pay as little as 7% on the new loan.
3. Everyone wins! Your new lender gets a 7% return and you save almost 20% in interest.

(Except your current creditors of course. But they’ve made enough money from your struggle already, so don’t feel bad for them.)

Now, to do this correctly you have to find a lender that will give you a fixed rate that’s fair — without a longer repayment period or outrageous initial fees.

And the best way to find a lender is to get quotes from many of them so you can compare apples to apples.

There’s just one catch:

There are thousands of lenders in the US.

So to find the best rate you must go through them one by one to see who gives you the best rate based on your specific state, your specific credit score, and your specific income.

This is because a consolidation loan is a highly individualized product. Every person’s situation is unique.

The lender giving me the best deal may be completely different than yours even if we live in the same ZIP code.

That’s why millions of Americans are using Upstart.com, an independent lending marketplace that does the heavy research for you.

They partner with banks to provide personal loans from $1,000 to $75,000.¹

But it gets better:

The website uses AI to go beyond traditional lending metrics such as credit score and income. Instead they also consider your education² and experience for example.

Thanks to this, Upstart can find you the lowest available rates for your needs from a panel of 100+ top-rated lenders — you will only be presented the ones in your ZIP code with high customer satisfaction scores.

These include major banks and top credit unions — all of which competing against each other to give you the best conditions.

No more long calls and endless wait times with sketchy banks. No more giving your details to strangers over the phone.

As of December 2025, over 4 million Americans have used the Upstart marketplace. And most borrowers are instantly approved.³

Today, you too get to stop missing out and finally get to save extra cash every month by getting the affordable rate you deserve.

The process is straightforward, simple, and secure. All you need is your smartphone and to answer a few simple questions.

In a couple of minutes you’ll find out which lenders you’re approved with. Then you can compare rates, monthly payments, and repayment terms to choose the loan that works best for you. No obligation to proceed, of course.

But once you do decide to proceed? Funds are sent in as fast as 1 business
day.⁴

To get started, simply tap your age below to check your rate in 5 minutes:

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Footnotes

1. Your loan amount will be determined based on your credit, income, and certain other information provided in your loan application. Not all applicants will qualify for the full amount. Minimum loan amounts vary by state: GA ($3,100), HI ($1,500), MA ($7,000). ↩︎
2. Although educational information is collected as part of Upstart’s rate check process, neither Upstart nor its bank partners have a minimum educational attainment requirement in order to be eligible for a loan. ↩︎
3. The majority of borrowers on the Upstart marketplace are able to receive an instant decision upon submitting a completed application, without providing additional supporting documents, however final approval is conditioned upon passing the hard credit inquiry. Loan processing may be subject to longer wait times if additional documentation is required for review. ↩︎
4. If you accept your loan by 5pm EST (not including weekends or holidays), you will receive your funds the next business day. When the funds will be available to you will depend on your bank’s transaction processing time and policies. ↩︎
5. When you check your rate, we check your credit report. This initial (soft) inquiry will not affect your credit score. If you accept your rate and proceed with your application, we do another (hard) credit inquiry that will impact your credit score. If you take out a loan, repayment information may be reported to the credit bureaus. ↩︎