The Definitive Guide to Debt Relief

Everything you need to know about debt relief programs.

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As of February 2019, American owe $13.54 trillion in household debt. That is about one-fourth of the nation’s collective income. On a personal level, the average American has about $38,000 of debt.

Personal debt of the average American.

While this high burden of personal debt causes concern among economists, some debt can be healthy. But when it goes from manageable to out-of-control, serious problems arise.

The good news, however, is that debt relief programs exist and can help you climb your way back to financial well-being if you find yourself falling down a slippery slope.

This in-depth guide covers everything you need to know about debt relief programs, including:

Let’s get started.

what is debt relief?

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 feel 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 agreemen, 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 toward 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 have an adverse impact on 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.

DEBT SETTLEMENT AND 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?

Unsecured personal loans can be handled with debt relief settlements. Secured debt, such as mortgages and auto loans are typically not eligible.

Common examples of unsecured debt include credit card debt, delinquent medical bills, utility bills, cell phone bills, or private student loans.

The most common type of debt included in debt relief settlements is — by far — credit card debt.

Federal student loans are not eligible for debt relief settlements since the federal government does not enter into regular debt relief programs. However, there are debt consolidation and debt forgiveness programs you can apply for.

Debt relief laws by state

Not all states allow debt settlement programs. The table below provides a detailed look at the state laws related to debt management programs. See what your state legislature has to say about debt relief.

STATESSTATUTORY CITATIONBOND/INSURANCE REQUIREMENTTERMINOLOGY
Alabamanone
Alaskanone
ArizonaAriz. Rev. Stat. Ann. §6-701 et seq.A cash or surety bond for the following amounts based on the amounts disbursed by the licensee in the previous license year:Debt Management Companies
Yearly disbursements – Amount of bond
Less than $100,000 – not less than $5,000
$100,000 – $250,000 – $10,000
$250,001 – $500,000 – $15,000
$500,001 – $1,000,000 – $20,000
More than $1,000,000 – $25,000
ArkansasArk. Stat. Ann. §5-63-301 et seq.ProhibitedDebt Adjusting
CaliforniaCal. Finance Code §12000 et seq.A licensed bill payer, general prorater, or special prorater who does not qualify to make use of agencies in the conduct of its business at all times shall maintain a surety bond in an amount as required by subdivision (a) of §12206 and assets of at least $10,000 in excess of its liabilities, of which assets at least $5,000 shall be liquid assets. A licensed bill payer, general prorater, or special prorater is qualified to make use of agencies in the conduct of its business if at all times it shall have capital of at least $100,000 and maintain a surety bond in an amount as required by subdivision (a) of §12206 and assets, excluding goodwill and other intangible assets, of at least $100,000 in excess of its liabilities, of which assets at least $25,000 shall be liquid assets.Prorater
ColoradoColo. Rev. Stat. §12-14.5-201 et seq.A surety bond filed pursuant to subsection (a) of this section shall: (1) Be in the amount of $50,000 or other larger or smaller amount that the administrator determines is warranted by the financial condition and business experience of the provider, the history of the provider in performing debt-management services, the risk to individuals, and any other factor the administrator considers appropriate; (2) Be issued by a bonding, surety, or insurance company authorized to do business in this state and rated at least A by a nationally recognized rating organization; and (3) Have payment conditioned upon noncompliance of the provider or its agent with this part 2.Debt Management
(a) Instead of the surety bond required by §12-14.5-213, a provider may deliver to the administrator, in the amount required by §12-14.5-213 (b), and, except as otherwise provided in paragraph (2) of this subsection (a), payable or available to this state and to individuals who reside in this state when they agree to receive debt-management services from the provider, as their interests may appear, if the provider or its agent does not comply with this part 2: (1) Repealed. (2) With the approval of the administrator, an irrevocable letter of credit, issued or confirmed by a bank approved by the administrator, payable upon presentation of a certificate by the administrator stating that the provider or its agent has not complied with this part 2.
(b) If a provider furnishes a substitute pursuant to subsection (a) of this section, the provisions of §12-14.5-213 (a), (c), (d), and (e) apply to the substitute.
ConnecticutConn. Gen. Stat. §36a-655 et seq.(1) Except as provided in this subdivision, for every applicant, the principal amount of the bond shall be the greater of (A) $40,000, or (B) (i) twice the amount of the average daily balance of the payments received by the applicant from Connecticut debtors in connection with the applicant’s debt adjustment activity during the preceding 12 months ending July 31st of each year, or (ii) in the case of an applicant that has acquired the business of a predecessor debt adjuster, the lesser of the amount of the predecessor’s debt adjustment activity during such preceding period or $1 million. The commissioner may require a larger bond if the commissioner determines that a licensee has engaged in a pattern of conduct resulting in bona fide consumer complaints of misconduct and that such increased bond is necessary for the protection of consumers, or may increase or decrease the amount of the bond based upon the applicant’s or licensee’s financial condition, business plan and the actual or estimated aggregate amount of payments and fees paid by Connecticut debtors to such applicant. Each licensee shall submit to the commissioner, by September first of each year, a report containing information on the average daily balance of the payments received by the licensee from Connecticut debtors during the preceding 12 months ending July 31st of each such year. The report shall be subscribed and affirmed as true by the licensee and shall be in a form prescribed by the commissioner.Debt Adjusters
(2) If a licensee or applicant for renewal of a license establishes that such licensee or applicant is unable to comply with the bond required by subdivision (1) of this subsection, it shall file a bond for the highest principal amount it can obtain, provided such amount shall be a minimum of $40,000, and the licensee or applicant for renewal shall, in lieu of the balance of the required amount of the bond, deposit a sum equal to the amount of the bond required by subdivision (1) of this subsection, less the amount of the bond filed with the commissioner, in cash or cash equivalents, with such bank, out-of-state bank that has a branch in this state, Connecticut credit union or federal credit union as such applicant or licensee may designate and the commissioner may approve, and subject to such conditions as the commissioner deems necessary for the protection of consumers and in the public interest. No licensee or applicant shall make such deposit until the depository institution and the licensee or applicant executes a deposit agreement satisfactory to the commissioner. The deposit agreement shall pledge the amount deposited to the commissioner and provide that the depository institution shall not release any of the moneys pledged without the authorization of the commissioner. The amount deposited shall secure the same obligation as would a surety bond filed under this section and shall be held at such banks or credit unions to cover claims during the period the license remains in full force and effect and the succeeding two years after such license has been surrendered, revoked or suspended or has expired. The licensee or applicant may collect interest on such deposit in accordance with its deposit agreement. The deposits made pursuant to this section shall be deemed, by operation of law, to be held in trust for the benefit of any debtor, who may be damaged by failure of a licensee or applicant to perform any written agreements or by the wrongful conversion of funds paid to a licensee in the event of the bankruptcy of the licensee, and shall be immune from attachment by creditors or judgment creditors.
Conn. Gen. Stat. §36a-671 et seq.(a)(3) Each debt negotiation licensee shall file a single surety bond that complies with the requirements of this section in connection with the main office license with the commissioner in an aggregate amount of $50,000 or such other amount required in subdivision (4) of this subsection, which bond shall identify any licensed branch office as a bonded location on such bond by addendum.Debt Negotiation
(4) In the case of a debt negotiation licensee engaging or offering to engage in the business of negotiating residential mortgage loans on behalf of mortgagors, such debt negotiation licensee shall file a bond in the penal sum amount set forth in subsection (f) of this section based on the aggregate dollar amount of the residential mortgage loans negotiated or offered to be negotiated by its sponsored mortgage loan originator licensees.
(e) The penal sum of the bond required by subdivision (4) of subsection (a) of this section shall be determined as follows: (1) An initial applicant for a debt negotiation license shall file a bond in a penal sum of $50,000. (2) A debt negotiation licensee sponsoring and bonding at least one mortgage loan originator as an exempt registrant under subdivision (2) of subsection (a) and subsection (c) of §36a-487, as amended by this act, shall file a bond with a penal sum in the following amount: (A) If the aggregate dollar amount of all residential mortgage loans negotiated or offered to be negotiated by all sponsored mortgage loan originators during the preceding 12-month period ending July 31st of the current year is less than $30 million, the penal sum of the bond shall be $50,000; (B) If the aggregate dollar amount of all residential mortgage loans negotiated or offered to be negotiated by all sponsored mortgage loan originators during the preceding 12-month period ending July 31st of the current year is $30 million or more but less than $50 million, the penal sum of the bond shall be $100,000; and (C) If the aggregate dollar amount of all residential mortgage loans negotiated or offered to be negotiated by all sponsored mortgage loan originators during the preceding twelve-month period ending July 31st of the current year is $50 million or more, the penal sum of the bond shall be $150,000.
(f) For purposes of subsection (e) of this section, the aggregate dollar amount of all residential mortgage loans negotiated or offered to be negotiated shall mean the aggregate underlying dollar amount of all residential mortgage loans for which a sponsored mortgage loan originator provides debt negotiation services.
DelawareDel. Code Ann. tit. 6, §2401A et seq.(a) Except as otherwise provided in §2414A of this title, every licensed provider shall file with the attorney general, in a form satisfactory to the attorney general, an original corporate surety bond, with surety provided by a corporation authorized to transact business in this state, in the principal sum to be determined by the attorney general, except that the bond amount shall not be less than $50,000. In determining the amount of the bond required for a licensed provider, the attorney general shall consider, among other things:Debt Management
(1) The dollar value of the licensed provider’s Delaware business;
(2) The dollar value of all trusts accounts; and
(3) Such other and further criteria as the attorney general may deem necessary and appropriate.
(a) In lieu of requiring the filing of a surety bond, the attorney general may, at the attorney general’s discretion, accept from a licensed provider an irrevocable letter of credit. Such irrevocable letters of credit shall be provided by an insured depository institution (as defined in the Federal Deposit Insurance Act at 12 U.S.C. §1813(c)) acceptable to the attorney general, in a form satisfactory to the attorney general in the principal sum to be determined by the attorney general, except that the irrevocable letter of credit amount shall not be less than $50,000. In determining the amount of the irrevocable letter of credit required for a licensed provider, the attorney general shall consider, among other things:
(1) The dollar value of the licensed provider’s Delaware business;
(2) The dollar value of all trust accounts; and
(3) Such other and further criteria as the attorney general may deem necessary and appropriate.
District of Columbianone
FloridaFla. Stat. §817.801 et seq.(1)(b) Obtain and maintain at all times insurance coverage for employee dishonesty, depositor’s forgery, and computer fraud. The insurance coverage must be in an amount not less than the greater of $100,000 or 10 percent of the monthly average of the aggregate amount of all deposits made for distribution to creditors with such person by all debtors for the six months immediately preceding the date of initial application for or renewal of the insurance. The deductible on such coverage shall not exceed 10 percent of the face amount of the policy coverage.Credit Counseling
GeorgiaGa. Code §18-5-1 et seq.(a)(2) Obtain and maintain at all times insurance coverage for employee dishonesty, depositor’s forgery, and computer fraud in an amount not less than the greater of $100,000 or 10 percent of the monthly average for the immediately preceding six months of the aggregate amount of all deposits made with such person by all debtors. The deductible on such coverage shall not exceed 10 percent of the face amount of the policy coverage. Such policy shall be issued by a company rated at least “A-” or its equivalent by a nationally recognized rating organization and such policy shall provide for 30 days’ advance written notice of termination of the policy to be provided to the governor’s Office of Consumer Affairs.Debt Adjustment
GuamGuam Code Ann. tit. 14, §7101 et seq.The agency shall file with the administrator a bond to be approved by it, in which the agency shall be the obligor, in the sum of $5,000, with one or more sureties, whose liability as sureties need not exceed that sum in the aggregate.Credit Counseling
HawaiiHawaii Rev. Stat. §446-1 et seq.ProhibitedDebt Adjusting
IdahoIdaho Code §26-2221 et seq.(2) The surety bond shall be executed to the state of Idaho in the sum of $15,000 or upon renewal in such larger sum as hereinafter provided.Credit/Debt Counselor
Upon renewal of a license, the licensee shall supply the director with a statement of the moneys accepted, received or held for another in the licensee’s conduct of business authorized by this act. The amount of the bond upon renewal shall be in the amount of $15,000, or two times the average monthly amount over the preceding year of moneys accepted, received or held for another in the licensee’s conduct of business authorized by this act computed to the next highest $1,000, whichever sum is greater, up to a maximum of $100,000.
IllinoisIll. Rev. Stat. ch. 205, §665/1 et seq.Every applicant shall submit to the secretary, at the time of the application for a license, a bond to be approved by the secretary in which the applicant shall be the obligor, in the sum of $25,000 or such additional amount as required by the secretary based on the amount of disbursements made by the licensee in the previous year, and in which an insurance company, which is duly authorized by the state of Illinois, to transact the business of fidelity and surety insurance shall be a surety.Debt Managment
Ill. Rev. Stat. ch. 225, §429/1 et seq.Every applicant shall submit to the secretary, at the time of the application for a license, a bond to be approved by the secretary in which the applicant shall be the obligor, in the sum of $100,000 or an additional amount as required by the secretary, and in which an insurance company, which is duly authorized by the state of Illinois to transact the business of fidelity and surety insurance, shall be a surety.Debt Settlement
IndianaInd. Code §24-5-15-1 et seq.(a) Before doing business in Indiana, a credit services organization must:Credit Services Organizations
(1) obtain a surety bond in the amount of $25,000, issued by a surety company authorized to do business in Indiana in favor of the state for the benefit of a person that is damaged by a violation of this chapter; and(includes debt settlement services)
(2) file a copy of the surety bond obtained under subdivision (1) with the attorney general.
(b) The attorney general may waive the bonding requirement under subsection (a) and, instead of the bond, accept an irrevocable letter of credit for an equivalent amount issued in favor of the state for the benefit of a person that is damaged by a violation of this chapter. A credit services organization that obtains an irrevocable letter of credit under this subsection must file a copy of the irrevocable letter of credit with the attorney general before doing business in Indiana.
Ind. Code §28-1-29-1 et seq.Effective until July 1, 2014:Budget Service Companies/Debt Management
Each application for a license shall be accompanied by proof that the applicant has executed a bond, payable to the department, in an amount determined by the director and in accordance with the standards adopted by the director. Said bond shall also indemnify any person damaged by failure on the part of the licensee to conduct the business in accordance with the provisions of this chapter.
Effective July 1, 2014:
(a) Each application for a license must be accompanied by proof that the applicant has executed a surety bond in accordance with this section.
(b) A surety bond issued under this section must:
(1) be in a form prescribed by the director;
(2) be in effect during the term of the license issued under this chapter;
(3) remain in effect during the two years after the licensee ceases offering debt management services to individuals in Indiana;
(4) be payable to the department for the benefit of: (A) the state; and (B) individuals who reside in Indiana when they agree to receive debt management services from the licensee;
(5) be in an amount equal to: (A) $50,000, in the case of an initial surety bond issued under this section; or (B) the amount prescribed under subsection (d), beginning with the first renewal of a license under this chapter;
(6) be issued by a bonding, surety, or insurance company authorized to do business in Indiana and rated at least “A-” by at least one nationally recognized investment rating service; and
(7) have payment conditioned upon the licensee’s or any of the licensee’s employees’ or agents’ noncompliance with or violation of this chapter or other applicable federal or state laws or regulations.
(c) The director may adopt rules or guidance documents with respect to the requirements for a surety bond as necessary to accomplish the purposes of this chapter.
(d) Beginning with the first renewal of a license under this chapter, each year that a licensee continues to offer debt management services to individuals in Indiana, the licensee shall file a new or an additional surety bond in an amount that ensures that the licensee’s surety bond under this section is equal to the greater of the following: (1) $50,000; or (2) the average of the highest daily balance of funds held in trust for Indiana residents for each month during the licensee’s most recently concluded fiscal year, not to exceed $100,000.
IowaIowa Code §533A.1 et seq.4. Each application shall be accompanied by a bond to be approved by the superintendent in favor of the people of the state of Iowa in the penal sum of $25,000 for each office, and conditioned that the obligor will not violate any law pertaining to such business and upon the faithful accounting of all moneys collected upon accounts entrusted to such person engaged in debt management, and their employees and agents for the purpose of indemnifying debtors for loss resulting from conduct prohibited by this chapter. The aggregate liability of the surety to all debtors doing business with the office for which the bond is filed shall, in no event, exceed the penal sum of such bond. The surety on the bond shall have the right to cancel such bond upon giving 30 days’ notice to the superintendent and thereafter shall be relieved of liability for any breach of condition occurring after the effective date of the cancellation. A person shall not engage in the business of debt management until a good and sufficient bond is filed in accordance with the provisions of this chapter.Debt Management (includes debt settlement services)
KansasKan. Stat. Ann. §21-6502ProhibitedDebt Adjusting
KentuckyKy. Rev. Stat. §380.010 et seq.(7)(a) A person engaged in debt adjusting shall obtain and at all times maintain insurance coverage for errors and omissions, employee dishonesty, depositor’s forgery, and computer fraud in the amount of 10  percent of the monthly average for the immediately preceding six months of the aggregate amount of all deposits made with the person by all debtors. The insurance coverage shall comply with all of the following: (a) The minimum limit of the insurance coverage shall not be less than $100,000, and the maximum limit of the insurance coverage shall not be more than $250,000; (b) The insurance coverage shall not include a deductible in excess of 10 percent of the face amount of the policy coverage; (c) The insurance coverage shall be issued by an insurer and rated at least A-, or its equivalent, by a nationally recognized rating organization; and (d) The insurance coverage shall provide that the Consumer Protection Division of the Office of the Attorney General shall be named as an additional interested party.Debt Adjusting
A debt adjuster shall maintain a bond issued by a surety company admitted to do business in this Commonwealth. The bond shall be in the amount of $25,000 in favor of the attorney general for the benefit of the Commonwealth for any violation of this chapter or any person suffering injury or loss by reason of any violation of this chapter. A copy of the bond shall be filed with the attorney general.
The bond shall be in effect during the period of the debt adjuster’s registration as well as for two years after the debt adjuster ceases to provide debt-adjusting services to debtors.
LouisianaLa. Rev. Stat. Ann. §14-331Prohibited when conducted for profitDebt Adjusting
MaineMe. Rev. Stat. Ann. tit. 32, §6171 et seq.Each application must be accompanied by evidence of a surety bond in a form approved by the administrator in the aggregate amount of $50,000 to run to the administrator for use by the administrator and any person or persons who may have a cause of action against a debt management service provider. The terms of the bond must run concurrently with the period of time during which the registration is in effect.Debt Management
MarylandMd. Financial Institutions Code Ann. §12-901 et seq.The surety bond shall be in an amount not less than $10,000 and not more than $1,000,000, as set by the commissioner.Debt Management
Md. Financial Institutions Code Ann. §12-1001 et seq.A surety bond filed under this section shall: (1) Run to the commissioner for the benefit of any consumer who is injured by a violation of this subtitle committed by a registrant; (2) Be in the amount of $ 50,000; (3) Be issued by a bonding, surety, or insurance company that is authorized to do business in the state; and (4) Be conditioned so that the registrant shall comply with all state and federal laws and regulations governing the business of providing debt settlement services.Debt Settlement
(Abrogated June 30, 2015)
MassachusettsMass. Gen. Laws. Ann. 180, §4AProhibited when conducted for profitCredit Counseling
MichiganMich. Comp. Laws §451.411 et seq.The amount of the surety bond must equal or exceed the total amount of Michigan clients’ funds in the applicant’s or licensee’s trust account at the time of application for license or renewal, as determined by the department, but in no event shall a surety bond be less than $25,000 or be greater than $100,000.Debt Management
MinnesotaMinn. Stat. §332A.02 et seq.Subd. 4. The registration application must be accompanied by a surety bond in which the applicant shall be the obligor, in a sum to be determined by the commissioner but not less than $5,000, and in which an insurance company, which is duly authorized by the state of Minnesota to transact the business of fidelity and surety insurance, shall be a surety. The commissioner may also require a fidelity bond in an appropriate amount covering employees of any applicant. Each branch office or additional place of business in this state of an applicant must be bonded as provided in this subdivision.Debt Management
Minn. Stat. §332B.01 et seq.An applicant for registration as a debt settlement services provider must comply with the requirements of §332A.04, subdivisions 3, 4, and 5.Debt Settlement
MississippiMiss. Code Ann. §81-22-1 et seq.To be eligible for a license, an applicant shall file with the commissioner a bond with good security in the penal sum of $50,000, payable to the state of Mississippi for the faithful performance by the licensee of the duties and obligations pertaining to the business so licensed and the prompt payment of any judgment that may be recovered against the licensee on account of charges or other claims arising directly or collectively from any violation of the provisions of this chapter.Debt Management
MissouriMo. Rev. Stat. §425.010 et seq.A debt adjuster shall provide a blanket bond in the amount of $100,000 in favor of the state of Missouri and a copy of the bond shall be filed with the director of the Division of Finance.Debt Adjusters
(includes debt settlement services)
MontanaMont. Code Ann. §30-14-2001 et seq.A surety bond for the benefit of consumers harmed by a violation of the provisions of this part in an amount, form, and duration as required by the department by rule, except that an applicant that does not maintain an office in this state with a credit counselor on the premises shall post a surety bond in the amount of $50,000.Debt Management
Mont. Code Ann. §30-14-2101 et seq.A debt settlement provider shall maintain insurance coverage for dishonesty, fraud, theft, and other misconduct on the part of directors, officers, employees, or agents that is issued by an insurer rated at least A- or its equivalent by a nationally recognized rating organization. The debt settlement provider shall, at the request of the attorney general, make available to the attorney general proof of the insurance coverage required by this subsection (1)(a). The insurance coverage must be in a minimum amount of $100,000 with a deductible of not more than $10,000.Debt settlement
NebraskaNeb. Rev. Stat. §69-1201 et seq.At the time of filing the application the applicant shall furnish a bond to the people of the state in the sum of $10,000, conditioned upon the faithful accounting of all money collected upon accounts entrusted to such person engaged in debt management, and their employees and agents. The aggregate liability of the surety to all claimants doing business with the office for which the bond is filed shall in no event exceed the amount of such bond. The bond or bonds shall be approved by the secretary and filed in the office of the secretary of state. No person, firm, limited liability company, or corporation shall engage in the business of debt management until a good and sufficient bond is filed in accordance with the provisions of §§69-1201 to 69-1217.Debt Management
NevadaNev. Rev. Stat. §676A.010 et seq.1. Except as otherwise provided in NRS 676A.400, a provider that is required to be registered under this chapter shall file a surety bond with the commissioner, which must:Debt Management
(a) Be continuously in effect during the period of registration and for two years after the provider ceases providing debt-management services to individuals in this state; and(includes debt settlement services)
(b) Run to this state for the benefit of this state and of individuals who reside in this state when they agree to receive debt-management services from the provider, as their interests may appear.
2. Subject to adjustment of the dollar amount pursuant to subsection 6 of NRS 676A.730, a surety bond filed pursuant to subsection 1 must:
(a) Be in the amount of $50,000 or other larger amount that the commissioner determines is warranted by the financial condition and business experience of the provider, the history of the provider in performing debt-management services, the risk to individuals and any other factor the commissioner considers appropriate;
(b) Be issued by a bonding, surety or insurance company authorized to do business in this state and rated at least A by a nationally recognized rating organization; and
(c) Have payment conditioned upon noncompliance of the provider or its agent with this chapter.
1. Instead of the surety bond required by NRS 676A.390, a provider may deliver to the commissioner, in the amount required by subsection 2 of NRS 676A.390, and, except as otherwise provided in subparagraph (1) of paragraph (b), payable or available to this state and to individuals who reside in this state when they agree to receive debt-management services from the provider, as their interests may appear, if the provider or its agent does not comply with this chapter:
(a) A certificate of insurance issued by an insurance company authorized to do business in this state and rated at least A or equivalent by a nationally recognized rating organization, approved by the commissioner and with no deductible, or, if the provider supplies a bond in the amount of $5,000, a deductible not exceeding $5,000; or
(b) With the approval of the commissioner:
(1) An irrevocable letter of credit, issued or confirmed by a bank approved by the commissioner, payable upon presentation of a certificate by the commissioner stating that the provider or its agent has not complied with this chapter; or
(2) Bonds or other obligations of the United States or guaranteed by the United States or bonds or other obligations of this state or a political subdivision of this state, to be deposited and maintained with a bank approved by the commissioner for this purpose.
2. If a provider furnishes a substitute pursuant to subsection 1, the provisions of subsections 1, 3, 4 and 5 of NRS 676A.390 apply to the substitute.
New HampshireN.H. Rev. Stat. Ann. §399-D:1 et seq.Each applicant shall submit to the commissioner, with his or her application for a license, a bond, in such form as the commissioner shall prescribe, in the amount of $25,000. The applicant shall be the obligor in such bond and an insurance company authorized to transact the business of fidelity and surety insurance in this state shall be the surety.Debt Adjustment
New JerseyN.J. Rev. Stat. §2C:21-19Prohibited without a licenseDebt Adjustment
N.J. Rev. Stat. §17:16G-1 et seq.Any nonprofit social service agency or nonprofit consumer credit counseling agency licensed under this act shall be bonded to the satisfaction of the commissioner for each location pursuant to regulation. In setting the bonding requirements for each location, the commissioner shall consider the number of debtors provided credit counseling and debt adjustment services at that location, and the balance of funds in the trust account required to be maintained pursuant to §3 of P.L.2005, c.287 (C.17:16G-9).Debt Adjustment, Credit Counseling
New MexicoN.M. Stat. Ann. §56-2-1 et seq.ProhibitedDebt Adjuster
New YorkN.Y. Banking Law §579 et seq.Except as provided hereunder, the principal amount of such bond shall be $250,000. The superintendent may require a larger bond if he or she determines, in his or her sole discretion, that a licensee has engaged in a pattern of conduct resulting in bona fide consumer complaints of misconduct and that such increased bond is necessary for the protection of consumers; or the superintendent may increase or decrease the amount of such bond or deposit based upon the applicant’s or licensee’s financial condition, business plan, and the actual or estimated aggregate amount of payments and fees paid by debtors to such licensee.Budget Planners
N.Y. Business Law §455 et seq.Budget Planning
North CarolinaN.C. Gen. Stat. §14-423 et seq.ProhibitedDebt Adjusting
(includes debt settlement services)
North DakotaN.D. Cent. Code §13-07-01 et seq.A consumer credit counseling service entering an agreement with a debtor who resides in this state shall file with the attorney general a surety bond or other security in an amount equal to the largest sum accrued in the service’s trust account during the prior year, or $5,000, whichever is greater.Consumer Credit Counseling
N.D. Cent. Code §13-11-01 et seq.The applicant must provide a surety bond in the sum of $50,000 or an additional amount as required by the commissioner by rule.Debt Settlement
OhioOhio Rev. Code Ann. §4710.01 et seq.A person engaged in debt adjusting shall obtain and maintain at all times insurance coverage for employee dishonesty, depositor’s forgery, and computer fraud in the amount of 10 percent of the monthly average for the immediate preceding six months of the aggregate amount of all deposits made with the person by all debtors. The insurance coverage shall comply with all of the following: (1) The insurance coverage is not less than $100,000. (2) The insurance coverage includes a deductible that does not exceed 10 percent of the face amount of the policy coverage. (3) The insurance coverage is issued by an insurer rated at least A- or its equivalent by a nationally recognized rating organization. (4) The insurance coverage provides that 30 days advance written notice be given to the consumer protection division of the attorney general before coverage is terminated.Debt Pooling/Debt Adjusting
Oklahomanone
OregonOr. Rev. Stat. §697.602 et seq.An applicant for registration as a debt management service provider at the time of application shall file with the director of the Department of Consumer and Business Services a bond issued by one or more corporate sureties authorized to do business in this state. The bond must: (a) Be in an amount that is: (A) A minimum of $10,000; or (B) An amount the director specifies by rule. (b) Require the surety company to provide written notice to the director by registered or certified mail: (A) At least 30 days before the surety company cancels or revokes the bond; or (B) Whenever the surety company pays for a loss under the bond. (c) Satisfy the provisions of subsection (2) of this section.Debt Management
PennsylvaniaPa. Stat. tit. 63, §2401 et seq.The department shall issue a license under this act if the applicant obtains and maintains a bond in an amount greater than the total amount of Pennsylvania consumer funds that the licensee will hold directly or in trust at any time, in a form acceptable to the department, prior to the issuance of the license, from a surety company authorized to do business in this Commonwealth. The bond shall be a penal bond conditioned on compliance with this act and subject to forfeiture by the department and shall run to the Commonwealth for its use. The bond shall also be for the use of any person against the licensee for the benefit of any consumer who is injured by a violation of this act or regulation promulgated under this act.Debt Management
(includes debt settlement services)
Puerto Riconone
Rhode IslandR.I. Gen. Laws §19-14.8-1 et seq.(a) Except as otherwise provided in §19-14.8-14, a provider that is required to be registered under this chapter shall file a surety bond with the director. Subject to adjustment of the dollar amount pursuant to §19-14.8-32(f), a surety bond filed pursuant to subsection (a) must: (1) Be in the amount of $50,000 or other larger or smaller amount that the director determines is warranted by the financial condition and business experience of the provider, the history of the provider in performing debt-management services, the risk to individuals, and any other factor the director considers appropriate; (2) Be issued by a bonding, surety, or insurance company authorized to do business in this state and rated at least “A” by a nationally recognized rating organization; and (3) Have payment conditioned upon noncompliance of the provider or its agent with this chapter.Debt Management
(a) Instead of the surety bond required by §19-14.8-13, a provider may deliver to the director, in the amount required by § 19-14.8-13(b), and, except as otherwise provided in subparagraph (2)(A) below, payable or available to this state and to individuals who reside in this state when they agree to receive debt-management services from the provider, as their interests may appear, if the provider or its agent does not comply with this chapter:
(1) A certificate of insurance issued by an insurance company authorized to do business in this state and rated at least “A” by a nationally recognized rating organization, with no deductible; or
(2) With the approval of the director:
(A) An irrevocable letter of credit, issued or confirmed by a bank approved by the director, payable upon presentation of a certificate by the director stating that the provider or its agent has not complied with this chapter; or
(B) Bonds or other obligations of the United States or guaranteed by the United States or bonds or other obligations of this state or a political subdivision of this state, to be deposited and maintained with a bank approved by the director for this purpose.
(b) If a provider furnishes a substitute pursuant to subsection (a), the provisions of §19-14.8-13(a), (c), (d), and (e) apply to the substitute.
South CarolinaS.C. Code Ann. 1976 §37-7-101 et seq.A credit counseling organization may not offer or agree to offer credit counseling services in this state without first filing a surety bond with the department. The amount of the surety bond must equal or exceed the total amount of South Carolina clients’ funds in the applicant’s or licensee’s trust account at the time of application for license or renewal, as determined by the department, but the surety bond must be at least $25,000. The surety bond is conditioned upon the faithful accounting of all money collected upon accounts entrusted to a credit counseling organization engaged in the business of credit counseling or its employees and agents.Consumer Credit Counseling
(includes debt settlement services)
South DakotaS.D. Codified Laws Ann. §37-34-1 et seq.Any person who files and maintains with the attorney general a bond to be approved by the attorney general in the penal sum of $50,000 conditioned for the faithful performance and payment of obligations of such debt adjuster arising in connection with his business as such, and for the payment of all claims for damages for which he may become liable in the course of his business as a debt adjuster.Debt Adjusting
TennesseeTenn. Code Ann. §47-18-5501 et seq.(a) Except as otherwise provided in §47-18-5514, a provider that is required to be registered under this part shall file a surety bond with the administrator, which must: (1) Be in effect during the period of registration and for two years after the provider ceases providing debt-management services to individuals in this state; and (2) Run to this state for the benefit of this state and of individuals who reside in this state when they agree to receive debt-management services from the provider, as their interests may appear.Debt Management
Subject to adjustment of the dollar amount pursuant to §47-18-5532(f), a surety bond filed pursuant to subsection (a) must: (1) Be in the amount of $50,000 or other larger or smaller amount that the administrator determines is warranted by the financial condition and business experience of the provider, the history of the provider in performing debt-management services, the risk to individuals and any other factor the administrator considers appropriate; (2) Be issued by a bonding, surety or insurance company authorized to do business in this state and rated at least “A” by a nationally recognized rating organization; and (3) Have payment conditioned upon noncompliance of the provider or its agent with this part.
(a) Instead of the surety bond required by §47-18-5513, a provider may deliver to the administrator, in the amount required by §47-18-5513(b), and, except as otherwise provided in subdivision (a)(2)(A), payable or available to this state and to individuals who reside in this state when they agree to receive debt-management services from the provider, as their interests may appear, if the provider or its agent does not comply with this part:
(1) A certificate of insurance:
(A) Issued by an insurance company authorized to do business in this state and rated at least “A” or equivalent by a nationally recognized rating organization approved by the administrator; and
(B) With no deductible, or if the provider supplies a bond in the amount of $5,000, a deductible not exceeding $5,000; or
(2) With the approval of the administrator:
(A) An irrevocable letter of credit, issued or confirmed by a bank approved by the administrator, payable upon presentation of a certificate by the administrator stating that the provider or its agent has not complied with this part; or
(B) Bonds or other obligations of the United States or guaranteed by the United States or bonds or other obligations of this state or a political subdivision of this state, to be deposited and maintained with a bank approved by the administrator for this purpose.
(b) If a provider furnishes a substitute pursuant to subsection (a), then §47-18-5513(a), (c), (d) and (e) apply to the substitute..
TexasTex. Finance Code Ann. §394.201 et seq.(a) A provider shall, at the time the provider files an initial or renewal registration application with the commissioner, file: (1) a surety bond; or (2) evidence that the provider maintains an insurance policy in a form approved by the commissioner. (b) The bond or insurance must: (4) be in an amount equal to the average daily balance of the provider’s trust account serving Texas consumers over the six-month period preceding the issuance of the bond, or in the case of an initial application, in an amount determined by the commissioner, but not less than $25,000 or more than $100,000; (5)if an insurance policy: (A) provide coverage for professional liability, employee dishonesty, depositor’s forgery, and computer fraud in an amount not less than $100,000; (B) be issued by a company rated at least “A-” or its equivalent by a nationally recognized rating organization; and (C) provide for 30 days advance written notice of termination of the policy to be provided to the commissioner.Debt Management
UtahUtah Code Ann. §13-42-101 et seq.(1) Except as otherwise provided in §13-42-114, a provider that is required to be registered under this chapter shall file a surety bond with the administrator. (2) Subject to adjustment of the dollar amount pursuant to §13-42-132(6), a surety bond filed pursuant to Subsection (1) must: (a) be in the amount of $100,000; (b) be issued by a bonding, surety, or insurance company authorized to do business in this state and rated at least A by a nationally recognized rating organization; and (c) have payment conditioned upon noncompliance of the provider or its agent with this chapter.Debt Management
Instead of the surety bond required by §13-42-113, a provider may deliver to the administrator, in the amount required by §13-42-113(2), and, except as otherwise provided in Subsection (1)(c)(i), payable or available to this state and to individuals who reside in this state when they agree to receive debt-management services from the provider, as their interests may appear, if the provider or its agent does not comply with this chapter:
(a) a certificate of insurance: (i) issued by an insurance company authorized to do business in this state and rated at least A or equivalent by a nationally recognized rating organization approved by the administrator; and (ii) with no deductible, or if the provider supplies a bond in the amount of $5,000, a deductible not exceeding $5,000;
(b) a certificate of deposit issued or confirmed by a bank approved by the administrator, payable upon presentation of a certificate by the administrator stating that the provider or its agent has not complied with this chapter; or
(c) with the approval of the administrator: (i) an irrevocable letter of credit, issued or confirmed by a bank approved by the administrator, payable upon presentation of a certificate by the administrator stating that the provider or its agent has not complied with this chapter; or (ii) bonds or other obligations of the United States or guaranteed by the United States or bonds or other obligations of this state or a political subdivision of this state, to be deposited and maintained with a bank approved by the administrator for this purpose.
VermontVt. Stat. Ann. tit. 8, §2751 et seq.Each applicant shall submit to the commissioner, with the application for a license, a bond, in such form as the commissioner shall direct, in the amount of $50,000, or such greater amount as the commissioner may determine is required by the business circumstances of the applicant.Debt Adjusters
VirginiaVa. Code §6.2-2200 et seq.The application for a license shall also be accompanied by a bond filed with the commissioner with corporate surety authorized to execute such bond in the commonwealth, in the principal amount as determined by the commission but not less than $25,000 nor more than $350,000.Credit Counseling
Debt Management
(includes debt settlement services)
Virgin Islandsnone
WashingtonWash. Rev. Code §18.28.010 et seq.Debt Adjusting
West VirginiaW. Va. Code §61-10-23Debt Pooling
WisconsinWis. Stat. §218.02The division may require any licensee either before or after the issuance of the license to file and maintain in force a bond in a form to be prescribed by and acceptable to the division, in such sum as the division may deem necessary to safeguard the interest of the borrowers and the public, not exceeding, however, the sum of $5,000.Debt Adjustment
WyomingWyo. Stat. §33-14-101 et seq.ProhibitedDebt Adjusters

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.

When does a debt relief program make sense?

Debt settlement programs make sense when you are tired of struggling with your debt alone and are ready for professional help. For example, if you haven’t been able to save money, can’t catch up on your payments, and don’t foresee that changing, then these programs can provide a significant benefit.

By enrolling, you can get on a path that will likely end in relief. Further, you can put a firm in charge of negotiations, which can grant you some peace of mind.

However, you will have to accept that your credit score will likely drop, the net savings might not be huge, and settlements aren’t guaranteed. Further, creditors can still pursue you and take legal action as long as your debts are outstanding. But it can be worth it to finally resolve your debt. Here’s an overview of the pros and cons.

WEIGH THE RISKS AND BENEFITS

Here is a list of the benefits and the drawbacks to consider when looking into debt relief

Pros
  • 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
Cons
  • 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

What are the alternatives to a debt relief program?

Not sold on a debt settlement program? Here are other debt relief options to consider.

ProgramDebt Management ProgramDebt ConsolidationChapter 7 BankruptcyChapter 13 BankruptcyTax Debt Relief

Overview

Non-profit credit agencies create plans to help debtors pay off unsecured debt in full through monthly payments, often with reduced rates and fees. The monthly payment is distributed amongst the debtor’s creditors.The debtor takes out a loan or line of credit large enough to pay off their smaller debts. It’s ideal for the debtor to find a lower cumulative interest rate than they are currently paying.A legal proceeding where a person’s non-exempt assets are liquidated by a trustee in order to pay off their secured and unsecured debts. Eligible debts which can not be paid by assets are erased.A legal proceeding where the debtor agrees to pay their creditors most, if not all, of what is owed (secured and unsecured debts) through a payment plan. A trustee administers the payment plan on the debtor’s behalf.Tax debt relief companies present your case to the IRS on your behalf and negotiate a settlement solution (payment plan, offer in compromise, uncollectible status, etc.)

Cost

A small monthly fee plus monthly payments toward the debt.The principal balance plus interest on the new loan and any applicable fees including, but not limited to, origination fees, and balance transfer fees.Around $335 for filing plus attorney costs and assets which are liquidated.Around $300 for filing plus attorney costs and monthly payments toward the plan.The cost can vary greatly from $500 to $3,000 any beyond depending on your tax situation.

Timeline

3 to 5 yearsLoan terms can vary greatly from 2 to 30 years.4 to 6 months3 to 5 yearsNA

Benefits

Regular payments can help credit scores to increase. Debtors can repay everything they owe and get free credit counseling.Potentially lower a debtor’s cumulative interest rate, ease debt management, and lower their monthly payments.If the debtor has few assets, they won’t lose much and can have their debt erased. Forgiven debt is not considered taxable income. The debtor can begin rebuilding in a relatively short amount of time.Debt that is not repaid by the end of the completed plan will be discharged and, if so, will not be taxable. Ch. 13 is often looked on more favorably than Ch. 7 bankruptcy.Enlist professional help to protect your best interests when settling tax debt. Potentially save money and time.

Drawbacks

Credit card accounts are closed which can hurt credit scores initially. Many people don’t complete the plans. Missing a payment can kick the debtor out of the plan. These plans are only for unsecured debts.Extending the loan period can end up costing more in the long run. Also, the debtor will have to get approved for a loan or line of credit large enough to cover their debts which may not be possible.Bankruptcy stays on a debtor’s record for 10 years. The debtor has to undergo credit counseling and a money management course. The debtor must qualify which requires an income under federal limits.Remains on a debtor’s credit report for seven years and can make it difficult to get approved for new credit. Requires the debtor to undergo money management classes and credit counseling.You have to pay for the service which you is possible to perform on your own. It’s important to carefully vet firms to ensure they run fair practices.

More information

Learn more about debt management programsEverything you need to know about debt consolidationLearn more about Ch. 7 BankruptcyCh. 13 Bankruptcy — When does it make sense?Learn more about tax debt relief firms

However, if debt relief sounds like the right fit for you, here is how to compare firms.

how find debt settlement company

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.

FAQ on Debt Relief

What is a debt relief program?

A debt relief program usually refers to a debt settlement program in which a firm helps a debtor negotiate and settle their debt(s). 

How do debt relief firms negotiate a debt settlement?

The companies generally offer to contact your creditors on your behalf, so they can negotiate a better payment plan or settle or reduce your debt. While they negotiate, the debt settlement company may also advise you to stop paying your creditors until a debt settlement agreement is reached.

What percentage should I offer to settle 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, but you should keep in mind that they’re not required to accept your offer.

What percentage will debt collectors settle for?

If you decide to offer a lump sum, understand that no general rule applies to all collection agencies. Some want 75%–80% of what you owe. Others will take 50%. Those that have given up on you may settle for one-third or less.

How long does it take to negotiate a settlement?

Typically, it can take anywhere from one to two weeks for the insurance company to respond to your demand letter. Then it can take anywhere from weeks to months until you reach a settlement that you will accept. Some people accept the first or second offer, while others may accept the third or fourth counteroffer.

Ready to start a debt relief plan?

Debt relief isn’t right for every situation. It’s important to know and understand all of your options. However, sometimes it is the best and last resort. If you want to speak with a top-quality debt relief firm, you can review and compare debt relief firms here to find the best fit for you.