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Best Debt Relief Companies

March 2024

If you're experiencing financial hardship and struggling to pay your credit card or other unsecured debts, you may be able to negotiate a settlement with your creditors. Debt settlement (or debt relief) service providers operating under FTC regulations specialize in negotiating with creditors on behalf of their clients. Debt settlement companies act as intermediaries between an individual and one or more of their unsecured creditors to obtain a reduction in principal owed.
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Cutting your debt in half may sound like a no-brainer, but negotiating a debt settlement is not a decision you should take lightly. It will damage your credit and the IRS may consider the money you save as taxable income. If you do choose to hire a debt relief firm, take your time to choose the best fit for your financial situation.
Compare the best debt settlement firms below as determined by the recommendations of SuperMoney community members and SuperMoney's algorithms.
Compare All Debt Settlement Companies


SuperMoney's list of the best debt settlement companies is based on the qualitative recommendations of our community members and the quantitative recommendations of our ranking algorithms. Here are the factors you should consider when choosing the best debt settlement firms.
  • Transparency. Keep away from companies that say debt settlement won't hurt your credit score. It will. The same applies to firms that claim they can keep debt collectors from calling you or lenders from suing you. They can't.
  • Fees. Low cost is important, but so are flexible payment options. Avoid firms that aren't transparent with their fees or that expect you to pay upfront for services you have yet to receive.
  • Debt types covered. Some debt settlement companies will only deal with certain types of unsecured debt, such as credit card debt. Make sure your debt settlement firm deals with the type of accounts you need help with.
  • Customer support. Look for companies with a clear and easy to understand website. Check user comments and customer reviews.
  • Accreditation. Check whether they are members of a major trade association, such as the American Fair Credit Council. Find out if all its debt specialists are certified by the International Association of Professional Debt Arbitrators (IAPDA). Certified debt relief agents typically have a better understanding of debt negotiation techniques and are required to follow best practices standards.
  • Experience and resources. Be cautious when hiring new and unproven companies. Keep away from firms that don't provide a physical address. A post office box doesn't count.

Complete Guide to Debt Relief

Believe it or not, debt settlement is a real thing. Debt relief companies help consumers who are struggling with debt to avoid bankruptcy and get their credit back on track. They can negotiate with creditors on your behalf and potentially cut your principal owed in half. That was the finding of a six-year study into debt settlement programs commissioned by the American Fair Credit Council. The study analyzed 2.9 million accounts and found that the average settlement for enrolled accounts is 48% of the balance owed at time of settlement.
Sounds too good to be true? Well, there are downsides to consider and some debt relief firms are certainly more reputable than others. With the advent of the 2008 financial crises, the debt settlement industry gained a poor reputation due to a minority of unscrupulous providers. The industry has matured significantly since this time and today there are multiple well established and reputable service providers to choose from.
This in-depth guide covers everything you need to know about debt relief programs, including:
  • What is a debt relief program?
  • How much does a debt relief program cost?
  • What are the average savings?
  • What are the alternatives to a debt relief program?
  • When does a debt relief program make sense?
  • Tips on finding the best debt relief company.
Let's get started.

What is a debt relief program?

Debt relief can mean different things depending on the context. However, a debt relief program usually refers to a debt settlement program in which a firm helps a debtor negotiate and settle their debt(s). Instead of paying creditors, the debtor sends their money to the agency, which deposits it into a bank account with a third party. In the meantime, the person's debt remains unpaid, and the penalties and interest grow.
Once the savings account reaches an amount that is large enough (as determined by the firm), negotiations on behalf of the debtor begin in an attempt to settle the debt(s). Creditors often settle for less than what you owe, because they are afraid they will get nothing if they do not agree to the lower settlement.

How do debt relief firms negotiate a debt settlement?

Once you begin working with a debt relief firm, it is a good idea to let your creditors know the name and contact information of the debt relief firm. In some cases, this may stop the collection calls you receive from creditors, at least until they verify the information you provide.
As your debt relief firm begins its work of negotiating with your creditors, the firm will require that you put a certain amount of money each month into a dedicated, FDIC-insured bank account. This bank account will be in your name, but it will be overseen by a trustee or account administrator.
The goal of your debt relief firm is to lower the principal balance owed on your account. In some cases, debt relief firms can convince a creditor to accept up to 50 percent less than the amount you currently owe to settle your debt in full.
After consulting with you about your current financial situation and your ability to make future payments, your debt relief firm will make a formal proposal outlining a settlement offer to each of your creditors. Your creditors then have the right to decide whether to accept or reject the settlement offer.
It is important to remember that your creditors have no legal obligation to accept a settlement offer. However, some creditors are willing to negotiate if they feel that collecting the full amount owed is not likely to happen or if they think that hiring a collections agency or pursuing litigation against you will cost more than they are willing to spend to handle the matter.
Once you reach a settlement agreement, your debt relief firm will make sure that all agreements are in writing and signed by both you and your creditors. This ensures that there is no misunderstanding among all interested parties.

Why do debt help firms ask you to stop making payments to your creditors?

Though it may seem strange to you, many debt relief firms will ask you to stop making payments to your creditors while they negotiate a settlement agreement. This serves two main purposes.
First, remember that your debt relief firm will be requiring that you make deposits into a bank account dedicated to settling your debts. It is highly unlikely that you can afford to make these deposits while also trying to repay your creditors individually. Realistically, if you have enough money to do both things at the same time, you likely do not need debt relief settlements in the first place.
Second, by not making payments to your creditors while your debt relief firm is in the process of negotiations, you put a bit more pressure on your creditors to accept a settlement offer. No creditor wants to run the risk of not collecting anything on an outstanding balance. And creditors may decide that accepting a settlement offer will ultimately be more beneficial to them than pursuing alternate ways of collecting the debt you owe.

How long does a debt relief settlement take?

There is no time-frame set in stone for how long it takes to settle a debt with your creditors. Your debt relief firm will submit proposals to your creditors. Typically, your creditors will respond to these proposals within a few weeks, though some creditors may take more than a month to reply.
The length of time it takes to pay your creditors depends on how much debt you owe and what the settlement agreement specifies. Once you have reached a settlement agreement with your creditors, your debt relief firm should be able to tell you exactly how long it will take to settle your debts according to the agreement.
In most cases, debt relief firms try to help you get out of debt within two to five years. If that is not possible through debt settlement, you might need to consider bankruptcy as an alternative.

What effect does debt relief have on your credit?

Even though debt relief is a way out of debt, it will hurt your credit. Because you are not making regular payments to your creditors while your debt relief firm is in the process of negotiating your settlement, your payments will not be considered as current.
The Federal Trade Commission (FTC) warns that your creditors can still charge late fees and penalties and pursue other collections options while your debt relief firm is working to negotiate a settlement for you. Additionally, the fact that you are settling your account for less than the full amount will likely lower your credit score.
Some credit card companies will report your agreement as a settlement to the credit bureaus. If that happens, the settlement will appear on your credit report for about seven years. It is permissible to ask your credit card company to report the settlement as "paid in full" instead. If the credit card company agrees to this, your credit scores will not be affected as much. While there is no guarantee that the credit card company will agree, it never hurts to ask for this consideration.
It is a good idea to check your credit score regularly. Check your score before entering into a debt relief settlement agreement, and then check it again after six months. At first, you may see your credit score dip considerably. In time, however, you should see your score begin to rise again as your debt relief firm begins to pay off your creditors one by one.

What types of debt can be handled with debt relief settlements?

Debt settlements are available for unsecured loans, such as medical debt, personal loans, payday loans, utility bills, and student loans. However, federal student loans are much harder to get. Secured debt, such as mortgages and auto loans, are typically not eligible.

Can you negotiate your own settlement with creditors?

You always have the right to negotiate a settlement with your creditors on your own. You may find, however, that negotiating with creditors is a messy affair. It takes a great deal of time and patience to effectively negotiate a settlement.
Often, finding a debt relief company to do your negotiating for you will result in a better deal for you and a quicker resolution to your financial worries. Good debt relief companies know the ropes of debt settlement. They know who to speak with, what to say, and how to best handle your creditors.

How much does a debt relief program cost? How much can you save?

When it comes to savings, clients can reduce their debt by about 32%, on average. Given that the fees average around 19% of the total enrolled debt amount, these programs could be expected to reduce your debt by about 13% overall.
Using the above example, if you enrolled $10,000 into a debt relief program, you would save $3,200, pay $1,900 in fees, and end up saving $1,300 overall. Of course, you also have to factor in the impact on your income tax.

What are the tax implications of debt relief programs?

It can be a great relief when your debt is settled. However, your troubles are not completely over until you pay Uncle Sam. If you reduce your debt by $600 or more, the IRS may consider it taxable income.
From the example above, if the debt settlement company saved you $3,200 in debt, you would have to pay taxes on that amount. In 2019, you would owe somewhere between $320 and $1,184, depending on your tax bracket. Your final savings would range between $116 and $980.

What are the pros and cons of negotiating a debt settlement?

Here is a list of the benefits and the drawbacks to consider when looking into debt relief
  • Potentially settle debt for less than you owe
  • Get professional assistance to get out of debt
  • Hand off the responsibility of debt negotiations with creditors
  • Don't pay anything upfront
  • Collectors can still pursue you until the debt is settled
  • Settlements are not guaranteed
  • You have to pay the agency
  • The process negatively affects your credit score
  • You have to pay income taxes on forgiven debts that exceed $600
  • Net savings may not be substantial

Tips on finding the best debt relief company.

When looking at debt relief firms, ask the following questions:

Do they have minimum and maximum limits on the amount of debt you can enroll?

Most companies require you to have a minimum amount of debt, which is usually around $10,000. Some lenders, such as Freedom Debt Relief, accept lower amounts. Other companies also have a maximum amount of debt you can enroll, such as $100,000. You will need to find a company with requirements that match your needs.

How long is the typical turnaround time to settle your debt?

Debt relief programs take time as you need to save up enough money to make substantial offers. On average, two to four years is reasonable. Check with several firms to find out their estimated time frames. If they are too short or too long, you should be suspicious.

What fees do they charge?

Debt relief firms charge a percentage of the debt you enroll, which can range from 10% all the way up to 60%. The amount will vary depending on the state in which you live and the company you choose. Look for a competitive cost as it will be the key factor in your net savings.

What types of debt are accepted?

Not all debts are eligible for debt relief programs, so find out which types of debt each company accepts. Do they only accept unsecured personal debts like those from credit cards, lines of credit, medical bills, and personal loans? Do they accept business debts? How about student loans, tax debts, or secured debts? Look for a firm that will accept the debts you need to enroll or as many of them as possible. In most cases, secured debts are not eligible.

Have past customers filed complaints against the company?

In 2010, many regulations were put in place to protect consumers in their dealings with debt settlement companies. To check if a specific firm has complaints filed against it, contact your State Attorney General and local consumer protection agency. They can also help you find out if the firm needs a license to operate in your state.

What accreditation does the company hold?

Several institutions offer accreditation to debt relief firms, which helps to give them more credibility. Look for accreditation by the American Fair Credit Council (AFCC), United States Organizations for Bankruptcy Alternatives (USOBA), and the International Association of Professional Debt Arbitrators (IAPDA).

Does the debt relief company provide any helpful tools?

Some debt relief companies do more than just provide the basic services, they also try to support your journey by providing you with tools and resources. These can include budget planning worksheets, blogs, guides, ebooks, debt relief calculators, etc. Compare various companies to see what tools they provide.

How is the customer service?

We typically don't care about the customer service of a company until we run into problems or have questions. It is important to find out ahead of time about the level and quality of support provided by a company. You can do so by researching the support channels they offer (phone, email, live chat, etc.) and by reading reviews from past customers. Look for companies like Debtmerica Relief and Rescue One Financial which are recommended by our community of users.

Do they provide the required information about the program?

According to the U.S. Federal Trade Commission, debt relief companies must disclose the following before any client signs up for its services:
  • The negative consequences you will likely experience by not paying your creditors
  • The amount you must save for each outstanding debt before the firm will begin negotiations with your creditors
  • The estimated time frame to make offers and settle your debts
  • The fees and conditions of its services
  • You can withdraw your money at any time without paying any penalties.
  • You are entitled to any interest yields on your money while it is in the savings account.
  • The funds you deposit are put into a bank account administered by an independent third party, and the debt relief company cannot receive referral fees.
If a company fails to communicate any of this, they are not following federal law, and this should be a reason for concern. As with any industry, there are bad actors and it pays to be vigilant.

Frequently Asked Questions About Debt Settlements

What is debt settlement?

Americans have more than $4 trillion in total consumer debt, not including mortgages, according to the Federal Reserve. If you have more debt than you can handle and no way to pay it in full, debt settlement may be an option. A debt settlement is an agreement to lower the debt amount a lender will accept as payment in full.
When you settle a debt, your creditor agrees to accept less than what you owe to resolve it. The settlements are typically negotiated long after you've defaulted on your credit card debts. If you've continued to pay your bills, creditors are not likely to be interested in settling your debt. However, if they believe that you may declare bankruptcy and they're in danger of not receiving any repayment, they may be willing to reduce the amount you owe and settle for less.
It is possible to negotiate directly with creditors, but debt resolution specialists will handle the burden on your behalf - for a fee. These for-profit debt settlement companies typically structure the service as a settlement program. When you enroll in the program, they will advise you to stop paying unsecured debts and instead place the money in a dedicated escrow account that you control, where the settlement funds will accumulate. When the balance is large enough, the debt settlement company will begin to negotiate with the credit card issuer to accept these funds as a settlement.

When is debt settlement a good idea?

Debt settlement will result in damage to your credit. You will have to decide whether protecting your credit or getting out of debt is more important to your financial health. In many cases, getting out of debt is the more important goal in the short term.
You should consider debt settlement options when you are struggling to pay your debts and a debt consolidation loan is not an option. Although there are no hard rules, settling your debt may be a good idea if your consumer debt balance is more than half your annual income or if you can't realistically afford to pay it off within five years.

What is the average debt settled by debt settlement companies?

These statistics illustrate the benefits of debt settlement programs. They are part of a 2015 study commissioned by the American Fair Credit Council that analyzed the outcomes of over 1.9 million consumer accounts enrolled in debt settlement programs between January 1, 2006, and March 31, 2015
  • The average settlement of an account enrolled in a debt settlement program is 48% of the balance owed.
  • Over half the consumer that enroll in a debt settlement program settle accounts within the first four months.
  • Debt reduction consistently saved consumers between $2.75 and $3.13 for every $1 paid in fees over the life of a debt settlement program.
Not everyone is going to qualify for a credit card debt settlement. And even those who qualify for a debt settlement may not receive the pennies on the dollar reductions they would like. However, that doesn't mean you can't qualify for a substantial debt reduction.

Can only poor people apply for debt settlements?

Credit card debt is a problem for all consumers but particularly for middle-class borrowers. After all, middle-class borrowers are more likely to have a credit card. Typically, they also have larger lines of credit than consumers in lower-income brackets. Federal regulations restrict credit card issuers from increasing the credit limit of an account unless they can determine the consumer has the income or assets to make minimum payments (source). According to the latest survey of consumer finances by the Federal Reserve, the average debt burden among members of the middle class -- those with earnings within the middle three-fifths of the total population -- is 122 percent of their annual income (source).

Is it unethical to negotiate for a debt settlement?

Banks and credit card companies like to portray debt settlements as an unethical debt relief tool that shows a lack of character. That is unfair. Of course, there are people who use credit irresponsibly or even fraudulently, but most people who negotiate a debt settlement have fallen into difficult times because of circumstances outside of their control, such as medical bills, family problems, and unemployment.
If you are looking for someone to blame – and there is plenty of blame to go around – the credit industry and the legislative branch have a lot to answer for. There is a reason credit card use, and, therefore, debt exploded in the 1980s. Spoiler alert. It wasn't the simply irresistible fashion industry. A 1978 ruling by the Supreme Court ended customer interest rate limits and the federal usury law. The deregulation of the industry allowed lenders to charge high interest rates and penalty fees that turned credit cards into cash cows for banks. Now, only nonprofit credit unions have an interest rate ceiling of 15 percent.

What is the difference between debt consolidation loans, credit counseling, and debt settlements?

The three main debt relief options for people with large debt problems are credit counseling, debt consolidation, and debt settlements. They are completely different from each other. They all have their pros and cons. A debt relief expert can help you determine which option is best for your financial circumstances.
Here is a brief summary of the pros and cons of each one:
  • Credit counseling may protect your credit score, but you will probably extend the term of your loan and pay more in interest. Plus, its success rate is extremely low. Most people drop out before the debt is repaid.
  • Debt consolidations require borrowers to either have good credit or to secure the loan with a home or another valuable asset. This method can reduce your monthly payments and protect your credit. However, it can also be expensive, take years to repay, and can put your home at risk.
  • Debt settlement will have a negative effect on your credit and won’t necessarily stop collection actions while you’re enrolled in the program. However, it gives borrowers who can only afford minimum payments a chance to get out of debt faster and save money on interest and fees.

Debt Settlements and Taxes: Are Debt Settlements Taxable?

It may surprise you that the IRS considers forgiven debt – which is what a debt settlement is – as taxable income.
Here is how it works. When lenders accept a debt settlement, they typically report the difference as lost income to the IRS, reducing their tax burden. Of course, the IRS still wants to collect the tax on this money and expects you to foot the bill.
Let's say you owed $20,000, and your credit card company accepted a $10,000 settlement, you may be liable for the taxes on $10,000. Depending on your tax bracket, your tax liability could be anything from $1,000 to $3,960. A $1,000 tax bill is preferable to a $10,000 debt, but it can be quite a shock if you don't know it's coming.

Exceptions to the debt settlement as income rule

The good news is there are several circumstances when the IRS cannot peg a tax bill on your forgiven debt. The bad news is that most of those exceptions don't apply to unsecured debt. Here are the cliff notes on forgiven debt exclusions. Stay with me to the end. I saved the one that is most likely to apply to debt settlements for last.
  • You discharged the debt in bankruptcy.
  • Your student loans were canceled as part of an agreement to work in a certain profession or for a particular employer.
  • You're a farmer. Farmers have several avenues to claim a break on the forgiven debt.
  • The canceled debt was on your main residence.
  • The forgiven debt is a gift. Needless to say, this is unusual because creditors can't claim a tax break on gifts.
  • The debt was a business expense that would have been tax-deductible. Just don't forget you can't claim the same business expense as a tax deduction.
  • You were insolvent when your creditor agreed to the debt settlement. This is a loophole that applies to many borrowers who complete a debt settlement program, particularly before the settlement is accepted.

So what does it mean to be insolvent?

Sadly, many people don't take advantage of this exception because they misunderstand the meaning of insolvent. If you have paid taxes on forgiven debt, you may be eligible for a tax refund without even knowing about it. According to the Taxpayer Advocate Service, a significant percentage of taxpayers who qualify for exclusions, particularly the insolvency exclusion, do not make claims. Insolvency is a legal term that requires you to owe more than the value of your assets. You don't have to look or feel dirt poor to be insolvent.
To find out whether you are insolvent, add up your assets just before the debt settlement. Then deduct your debts, including the debt forgiven in the settlement. If your debts are worth more than your assets, you're insolvent and don't have to pay taxes on your canceled debt. Notice that even if your debt settlement pushes you out of insolvency, you still can claim a deduction on part of your "taxable income." Here are a couple of scenarios to illustrate it.
John owes $50,000, and his assets are worth $40,000. His creditors agree to forgive $9,000 as part of a settlement. He is still $1,000 in the red, so he doesn't have to pay taxes on the forgiven debt.
Jane, on the other hand, owes $50,000, and her assets are worth $40,000. Her creditors forgive $15,000 as part of a debt settlement. She has to report $5,000 (not $15,000) in income on her next tax return.

What is a 1099-C Form?

Most people first hear about paying taxes on canceled debt when receiving a 1099-C form in the mail. A 1099-C is a tax notice that reports a canceled debt. Pay attention to boxes 2 and 6 of the form. Box 2 gives you the amount of debt you were forgiven, and box 6 specifies how the debt was canceled.
Here is a cheat sheet for the codes the IRS uses to describe the "identifiable event" that causes debt cancellation.
  • A: Bankruptcy
  • B: Other types of judicial debt relief
  • C: Statute of limitations (time to collect debt ran out)
  • D: Foreclosure
  • E: Debt relief from probate
  • F: By agreement. This is the code you will see if your debt was canceled as part of a debt settlement
  • G: Creditor's decision or policy to stop collections
  • H: Expiration of nonpayment testing period
  • I: Intermediate debt cancellation before one of the events described above

How do you report income from a debt settlement?

Your first step should be to make sure you don't qualify for an exception. Another reason to work with a debt settlement company that employs tax attorneys and CPAs.
If you qualify for an exclusion, you don't need to report your canceled debt on your tax return. However, you may have to file a Form 982 if the exception was related to insolvency or bankruptcy.
If you don't qualify for an exclusion, you need to report the canceled debt on the "other income" line of your tax return or on your Schedule C if the debt was related to your business.
Consider spending a few extra dollars on a premium tax preparation package after a debt settlement. Tax preparation programs like TurboTax and TaxAct can walk you through the "income" reporting process.
Completing a debt settlement program may come with a tax bill hidden inside. The IRS considers canceled debt as income, but you qualify for a tax break if you were insolvent when you accepted the debt settlement. Talk to a tax attorney or hire a debt settlement company that has tax attorneys and CPAs on its staff.

Do credit reports show the unpaid balance on debt settlements?

You may have heard that delinquent accounts show on your credit report for up to 7 years. This is true. The credit report also shows the balance you owe, for lenders, employers, and landlords to see. The same CANNOT be said about debt settlements.
If a creditor agrees to a debt settlement, you no longer owe the remaining or “forgiven” balance. That is, after all, the whole point of a debt settlement: to provide people with overwhelming debt a clean slate. When lenders report the debt settlement to credit bureaus, the debt balance goes down to zero. However, creditors may add a note along the lines of “settled for less than full balance." Even the content of this note is up for negotiation during the settlement. Although there are no guarantees, you can request your creditor to omit it as part of your debt settlement negotiation.
Warning: There is a scenario where this myth does prove to be true. If as part of your debt settlement you agree to be liable for the deficiency balance, you will owe the difference between the full balance and the amount you pay as part of the offer in compromise. You should never agree to this. No reputable debt settlement company will ever allow you to agree to this. It is a trick debt collectors and unscrupulous creditors pull on people who negotiate their own debt settlement.

What are debt settlement scams?

A debt settlement scam occurs when a company solicits your money for debt relief services that they never intended to provide.
In most cases, they'll offer to negotiate with your creditors on your behalf, just like a real debt relief firm would. Then they'll take your money and run.
In other cases, an exploitative debt settlement firm will string you along for months or even years. They'll collect payment after payment, making false promises while your debt continues to grow.
Even worse, these debt settlement scams often look totally respectable. They run advertisements on TV or the radio. They maintain official-looking websites, and they hire representatives to answer your questions over the phone.
Of course, there are reputable debt settlement firms out there. And we all need a little help sometimes. So how can you tell you are dealing with a scam?

What are the signs of a debt settlement scam?

Want to know if a debt settlement company is trying to take advantage of you? Keep an eye out for the following red flags.

They make you pay upfront

Did you know that it's illegal for a debt relief firm to charge upfront? It's true! That means that if a debt settlement firm asks you to pay upfront, they're already breaking the law. That greatly increases the odds that they'll take your money and run.
If you're speaking to a debt relief firm that asks for money upfront, report them to the FTC. You could prevent another, less prudent customer from getting scammed.

They guarantee success

Unfortunately, when it comes to debt relief, there are no guarantees. So if a debt settlement firm guarantees a successful settlement, that's a huge red flag. It means that they're willing to lie to you to get your money. And if they're lying about that, what else might they be lying about?

They tell you to stop contacting your creditors

When you're struggling to pay your debts, the best thing you can do is stay in touch with your creditors. Proactively keeping them informed about your situation is the single best way you can stay on top of your debt. The more you communicate with your creditor, the likelier they are to work out an agreement with you!
So if a debt relief firm tells you to cut off all contact with your creditors, it should set off your alarm bells. Likewise, if they tell you to switch your mailing address so that they receive your creditor's statements in your stead, you should feel suspicious. A reputable debt settlement company should work with you to help you manage your debts. If they want to keep you out of the loop, they're probably trying to take advantage of you.

They enroll you in a debt relief program before reviewing your situation

In order to come up with an appropriate debt relief program, debt relief companies must review your financial situation with you. If they slot you into a particular program without even looking at your case, they're either completely incompetent, or they're trying to rob you. Hang up the phone and report them to the FTC.

How do the best debt settlement firms operate?

The main goal of a debt relief firm is to settle the debts of their clients for a fraction of what they owe. The idea is based on the premise that if borrowers don't make payments, creditors may accept a lower amount to avoid them declaring bankruptcy. Typically, debt relief firms will ask their clients to make monthly payments to an escrow bank account until there is enough money for the debt settlement company to negotiate with creditors.
The job of debt relief specialists is to find the lowest possible amount creditors will accept to discharge their clients' unsecured loans. There are two main types of settlements: lump-sum and term settlements. In a lump-sum settlement, the firm makes one large payment to the creditor. In the case of term settlements, the firm makes multiple payments over time.
Often creditors sell delinquent accounts to debt collection agencies. In such cases, the debt settlement companies negotiate directly with the collection agencies.

How much money can you save with the best debt relief companies?

It all depends on your financial circumstances, how much you owe, and who your creditors are. Savings will vary from case to case. However, according to a study by the American Fair Credit Council 95% of clients saved money after fees when hiring a debt settlement company. On average clients saved $2.64 for every $1 they paid in fees.

What is the best debt relief company?

It depends on who is asking. There are plenty of reputable debt relief companies that can help you negotiate your debts with creditors. But the best one for you will depend on several factors, such as how much you owe, the complexity of your case, and where you live. Look for debt resolution programs that are accredited, licensed to work in your state, and that employ certified debt resolution specialists. The list of top-rated debt relief services above is an excellent place to start. All those firms offer a free consultation where you can get a feel of whether a company is a good fit for you. It is a good idea to check two or three companies before making a decision.

Which debt settlement providers should you avoid?

The Consumer Financial Protection Bureau has some excellent advice for people shopping for the best debt settlement firms. In a nutshell, the CFPB recommends you avoid companies that:
  • Charge fees before they settle an account.
  • Refer to a “new government program” that can bail you out of your credit card debt.
  • Guarantee they can make your debt disappear.
  • Promise they can stop debt collecting actions.
  • Do not provide a clear price estimate for its services.

Is it better to pay off a debt or settle?

It is always better to pay your debt off in full if possible. Although settling an account is better than not paying it at all, a settled account is still considered a negative item on your credit report. Any time you don't repay the full amount owed, it will have a negative effect on credit scores. The "settled" status will remain for seven years from the original delinquency date of the account.

What percentage should I offer to settle a debt?

Depending on the creditor and how much you owe, you may be able to settle for anywhere from 30% to 70% of the outstanding balance of your debt. Typically, a creditor will only consider a settlement when an account is delinquent. So, you will usually need to stop making payments for a credit to even consider a settlement. But keep in mind that they're not required to accept your offer and missing payments will damage your credit score and the creditors may sue you.

Does debt settlement hurt your credit?

Yes, negotiating a settlement with your creditors will without a doubt damage your credit score.

How much will a debt settlement hurt your credit score?

Nobody can say exactly how much a debt settlement will damage your credit. A lot depends on how many accounts you settle and whether you were already delinquent. A single account debt settlement can reduce your credit score by 45 to 130 points depending on what your current credit score is. The higher your credit score, the worse the damage to your credit. To illustrate, someone with a credit score above 670 will get 90 to 130 points shaved off her score after settling an account. But the score of someone who already had poor credit (a credit score under 670) may only drop by 45 to 65 points.

What debt relief options are there?

There are several debt relief solutions available to borrowers. The best debt relief option for you will depend on your income, financial circumstances, and the types of debt you carry. Each one has its own advantages and disadvantages.
Some debt relief programs will require you to get a debt consolidation loan or to own a home. Other programs and debt relief companies will require you to establish a debt management plan or seek the assistance of a debt settlement company or a credit counseling agency. Every debt relief plan will require you to make a commitment.
If you have tried unsuccessfully to get out of debt and are now looking for some professional assistance, you can consider the following debt relief options:
  • Seeking professional help from a certified credit counselor
  • Applying for a debt consolidation loan
  • Investigating debt settlement
  • Filing for bankruptcy as a final option

Credit counseling

Credit counseling services offer assistance with budget development, education, and, most important, debt management plans. Debt management programs will help you set aside money to make payments on your debts. Some programs will even put you on a payment schedule. Depending on the type of debt you have, credit counseling agencies may also suggest you look into balance transfer credit cards to reduce the interest rate you are paying on your credit card debt. The quality of credit counseling organizations may vary; do your research and be sure to find a reputable and certified credit counselor to work with.

Debt consolidation

Debt consolidation loans come in a variety of types to suit your specific needs and situation. The purpose is to consolidate all or most of your outstanding debt into a single monthly payment often with a lower interest rate. Debt consolidation loans may need to be secured by an asset such as your home or car depending on your credit score. If you have a good credit score and clean credit history, you may qualify for an unsecured debt consolidation loan.
Here are our recommendations for the best debt consolidation loans.

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Debt settlement

There are major differences between debt settlement, credit counseling, and debt management programs. Debt settlement companies focus on negotiating with your creditors on your behalf to reduce the amount you owe, allowing you to pay less than the full balance of the debt owed. In some cases, you may be required to make a lump-sum payment, though you will usually agree to a bi-weekly or monthly payment plan as a part of your debt settlement agreement. Debt settlement can help you if you cannot afford to pay your debts in full.


Bankruptcy is a long, difficult process that will live with you for many years to come. It should be your last choice when it comes to debt settlement. If you've explored all your other options and find that your cannot settle your expenses with any other debt relief option, your may choose to file for personal bankruptcy under either Chapter 7 or Chapter 13. Filing for bankruptcy must be done through federal court and will cost you several hundred dollars. Bankruptcy requires you to either liquidate your assets to pay your debts or to establish a repayment plan. It also severely and negatively impacts your credit score. To learn more about bankruptcy, read this in-depth guide..

How to find the best debt relief services?

The list of top debt settlement firms above is an excellent place to start. However, it's always a good idea to do your own research and shop around before you choose a debt settlement company. Here are a few questions that can help you find the best debt settlement firm for your particular situation.
  • Is the company accredited by the American Fair Credit Council (AFCA) or the International Association of Professional Debt Arbitrators (IAPDA)? Although not a guarantee, it's a good idea to choose companies that are members of the leading trade associations and agree to follow their standards of practice.
  • How long has the firm been in business? It is usually best to get with established companies that have the experience, resources, and contacts to negotiate the best deal possible.
  • Do they charge fees upfront? It is illegal for debt settlement firms to charge for services they have yet to provide. However, some firms circumvent these rules by charging monthly consultancy fees.
  • What is the minimum debt they will handle? Debt settlement fees are typically calculated as a percentage of debts enrolled. Therefore some companies will not consider smaller debt amounts.
  • What types of debt accounts do they handle? Debt settlement firms vary in the type of debt accounts they will work on. For instance, not all firms work with medical debt, business debt, or student loans.
Still not sure which debt relief firm is best for you? Answer a few questions and get recommendations based on how much you owe, the types of debt you have, your credit score, and where you live.

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