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Debt settlement companies generally negotiate with your creditors so you can pay off your debt for less than you owe. If you’re considering debt settlement, choosing a trustworthy company is important. The Forbes Advisor editorial staff evaluated the most popular debt relief companies to help you make an informed decision.
Our debt experts have compared 25 companies that offer debt settlement services to find the best options available. For a company to appear on this list, its debt settlement services must be widely available in the U.S.
Debt settlement can come with significant risks: It can damage your credit and be costly, and it isn’t guaranteed to work. Because of this, it’s important that you find and work with a reputable company. The best debt relief companies are transparent about fees, have a long history of excellent customer service and are accredited by an industry watchdog such as the American Association for Debt Resolution, or AADR.
Company | Forbes Advisor Rating | Best For | Fees | BBB Rating | LEARN MORE | ||||
---|---|---|---|---|---|---|---|---|---|
National Debt Relief | 4.5 | Best for Fee Transparency | 15% to 25% | A+ | Learn More | On Nationaldebtrelief.com's Website | |||
Pacific Debt Relief | 4.1 | Best for Established Track Record | 15% to 35% | A+ | Learn More | ||||
Accredited Debt Relief | 4.0 | Best for Quick Resolution | 15% to 25% | A+ | Learn More | On Accredited Debt Relief's Website | |||
Money Management International | 4.0 | Best Nonprofit for Debt Relief Help | $33 set up fee; $25 monthly fee | A+ | Learn More | Read Our Full Review | |||
CuraDebt | 3.9 | Best for Negotiating Tax Debt | Up to 20% | A+ | Learn More | ||||
New Era Debt Solutions | 3.8 | Best for After-Hours Customer Service Options | 14% to 23% | A+ | Learn More | On New Era's Website | |||
Freedom Debt Relief | 3.7 | Best for Monitoring Progress With an Online Dashboard | 15% to 25% | A+ | Learn More | On Freedom Debt Relief's Website |
Debt settlement, sometimes referred to as debt relief, is the process of settling debts for less than the amount owed. When you settle debts, you pay an agreed-upon amount to each of your creditors. This payment ends your obligation to pay, and the remaining debt is canceled or forgiven.
Debt settlement is a form of debt relief that allows you to relinquish some of the financial burden of owing money to creditors. There are generally two options for debt settlement:
If the thought of learning how to negotiate credit card debt settlement seems overwhelming, it could make sense to work with a debt settlement company. The debt professionals at these companies can handle all of the heavy lifting, making it easier for you to eliminate your debts.
Debt settlement companies are often called “debt relief” companies, which may be misleading. Unlike student loan debt relief, where your debt may be canceled, no federal programs provide debt relief. In other words, you would have to choose between settling your debt–by either paying it in full or negotiating a lower balance–or filing for bankruptcy.
You would first contact the party you owe money to—either the original creditor or a debt collector representing them—and ask about options to pay off your debt. You may be able to negotiate with creditors to pay a reduced lump sum, sometimes less than the total owed, in exchange for forgiving the remaining debt.
If you work with a debt settlement company, you may be asked to stop making payments temporarily to increase negotiation leverage. Of course, doing this could hurt your credit score, but if you’re already in a position where you can’t afford to pay your bills, this may be a better option than not paying altogether, which could result in a lawsuit or further damage to your credit score.
The debt settlement company then negotiates with creditors, aiming for a mutually agreed-upon reduced amount. Upon reaching a settlement, you would either make a lump sum payment or monthly payments, depending on the agreement.
Ultimately, paying less than you owe through debt settlement will have a negative impact on your credit score. However, it’s temporary and a better alternative than ignoring the debt altogether.
Related: Debt Settlement: How Does It Work And Is It Worth The Risks?
Anyone who has debt technically qualifies for debt settlement. Some companies may require minimum debt thresholds, but there’s no standard rule.
Discover the pros and cons of debt relief below to find out if its right for you
Along with hits to your credit, debt settlement also comes with other risks. Here are some things you should watch out for.
Debt settlement may be a good idea if you can’t afford all the debt you owe but want to avoid bankruptcy’s long-term consequences. In that case, settling your debt can be a good compromise between paying in full and declaring bankruptcy.
If you need good credit to qualify for a job or for financing, such as a mortgage or personal loan, debt settlement may not be the best option.
It can negatively affect your credit score because you may be encouraged to miss payments in order to negotiate lower balances with your creditors. This is a common leverage tactic that debt relief companies use to help borrowers land payment plans they can afford.
However, because payment history makes up a large percentage (35%) of your credit score, late payments will negatively affect your credit.
Before you select a debt settlement or debt relief company, make sure you research it thoroughly. There are many bad actors who pose as legitimate companies (usually promising to wipe out all of your debt) and are just trying to scam you out of money.
The Consumer Financial Protection Bureau recommends doing the following:
If you’re not sure about debt settlement, there are other ways you can handle your debt that might have less of an impact on your credit score. As you decide what to do about your debt, make sure you’re choosing an affordable solution. For example, don’t pay off your debt with a loan secured by your home, because if you get behind on payments you could lose your home.
Here are some other options:
Debt settlement and debt consolidation are different approaches to managing multiple debts. Debt settlement negotiates a lower amount owed, while debt consolidation merges debts into a single payment. Debt settlement is for those struggling to afford current debts.
On the other hand, debt consolidation is beneficial for streamlining payments and possibly securing a lower interest rate. It typically involves options like personal loans, cash-out refinances or low-APR credit cards. While applying for new credit may cause a minor credit score dip, debt consolidation itself doesn’t harm your credit.
  | Debt Settlement | Debt Consolidation |
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Definition
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Negotiating with creditors to pay off a portion of the debt
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Combining several debts into one loan with a lower interest rate
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Effect on credit
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Negative if company recommends you stop making payments
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Minimal if payments are made on time and credit utilization is low
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Length of time
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Typically shorter than debt consolidation
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Usually longer than debt settlement
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Effect on debt
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Debt reduced but credit score may suffer
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Debt balance stays the same, but may be easier to manage
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Fees
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Generally involves paying fees to a debt settlement company
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May involve fees for balance transfers or loan origination
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Risks
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Scams and damage to credit score
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Taking on more debt if spending habits don’t change
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Related: What Is Debt Consolidation & How Does It Work?
Debt settlement and bankruptcy are options for managing overwhelming debt, each with its own advantages and disadvantages. The two main differences between these options are your debt status and credit status.
With debt settlement, you’ll still owe money, but it may be less than what you initially owed. However, your credit can be repaired in a much shorter amount of time than with bankruptcy. Similarly, you won’t have the stigma of a bankruptcy on your credit report, which can affect your ability to rent and get employment.
Bankruptcy allows you to be debt-free, but the price is having it show on your credit report and public records for up to 10 years.
The choice between debt settlement and bankruptcy should depend on your circumstances and financial goals. Speak with a financial advisor or debt counselor if you’re unsure which path is best for you.
We reviewed 25 debt companies that offer debt settlement services to develop our list of the best debt relief companies. We analyzed each company on 18 data points in the categories of fees, customer satisfaction and experience, digital experience, history and the number of services provided. We chose the seven best debt settlement companies based on the weighting assigned to each category:
We considered several characteristics within each category, including its fee for relief, Better Business Bureau score, Trustpilot score, time in business and accreditation with the AADR. We also considered whether the company offers services like free consultations and credit counseling. Finally, we evaluated each company’s digital experience based on their mobile app and website. For a company to appear on this list, its debt relief services must be widely available in the U.S.
Debt relief companies normally charge a fee for their services, which can range from 15% to 25% of the total debt owed. Some of the best debt relief companies work on a performance-based fee structure, meaning you only pay a fee once the company settles a debt. Considering the cost of these fees can help you decide if debt settlement is right for you.
The percentage of debt typically accepted in a settlement can vary widely depending on your specific circumstances. It’s important to consider how much you can afford to pay. However, it’s common for settlements to be around 50% to 70% of the original debt. The longer the debt has been outstanding, the more agreeable the creditor may be to a steeper discount.
The debt settlement process varies and may, according to the National Foundation for Credit Counseling, take as long as three to four years.
The impact of debt settlement on your credit score largely depends on how many accounts you’re trying to settle and the recency of your last payment. Your payment history accounts for the largest portion of your credit score, and multiple late payments can cost you significant points. However, you’re more likely to see a larger decline if your credit score was high before you began the debt settlement process.
Negative information, including late payments associated with debt settlement, can remain on your credit reports for up to seven years. The impact of late payments and other negative information lessens over time, but you may see an immediate credit score drop following your first late payment.
While there are legitimate debt settlement companies, there are also many scammers in that industry. Be cautious of any company that guarantees results or requires an upfront fee before any debt is settled. Always research a company before working with them, and check for any complaints or negative reviews.
By law, debt settlement companies are required to disclose certain details before you sign up for services. This includes fees and terms for any services offered, an estimate of how long it may take for the company to settle with creditors, how much money you must save before the company makes an offer to creditors and information about the negative consequences of halting payments to creditors.
If you’re interested in negotiating debt settlement on your own, you’ll need to know how to write a debt settlement proposal letter. This letter should identify the account you’re hoping to sell, include a proposed settlement amount and cite any supporting information regarding why the creditor should agree. If you have any documentation to back up your claim, such as a medical bill or unemployment claim, you may want to include copies of that as well.
While a debt settlement can stay on your credit report for seven years, you won’t necessarily be prevented from qualifying for a mortgage. Mortgage lenders look at a mix of factors when deciding whether to provide a loan, including a borrower’s credit score, down payment amount, work history and assets. Some loan programs also take into account first-time home buyer status.