Debt settlement
Debt settlement
Debt settlement means negotiating each unsecured debt down to less than you owe, then paying the agreed amounts from an account in your name. Here is how it works, what it costs and what can go wrong.
You approve every settlement before a dollar is paid
The plain terms
What every settlement program involves.
Four things every debt settlement program shares, ours included. None of them belong in small print.
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The deal
Creditors accept less than the full balance.
Each account is negotiated on its own. Not every creditor agrees to settle.
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The money
You save into an account in your own name.
A dedicated account in your name at a federally insured bank, held by an independent processor, that you can view online 24/7.
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The risk
Your credit score will drop, and creditors can sue.
Interest and late fees can keep adding up until an account settles. Forgiven debt may be taxable.
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The fee
A fee applies, and only after a settlement.
The fee is a percentage of your enrolled debt, set individually, and charged only after a settlement is reached.
In this guide
Debt settlement, one question at a time.
Start with how it works. Every page shows its sources and its downsides.
Start here
How debt settlement works, step by step
From the first call to the last settled account: the account in your name, the negotiations, and the approval you give before every payment.
- Credit cards
- Medical bills
- Personal loans
- Eligible
- Unsecured debt, including store and gas cards, past-due utilities, old apartment leases and judgments
- Not eligible
- Student loans, mortgages, car payments, other secured loans and income tax debt
- Minimum
- $10,000 in total, at least $500 per creditor
Cost
Fees, in dollars
How the fee is set, when it is charged, and how to see it before you sign anything.
Debt settlement feesRisks
Credit score, lawsuits and taxes
What can go wrong, stated plainly, and how to weigh it against what you could save.
Risks and credit impactTaxes
Is settled debt taxable?
Form 1099-C, the insolvency exclusion, and when to ask a tax professional.
Taxes on settled debtCredit cards
Credit card debt relief
Settlement for card balances, with your own illustrative estimate in dollars.
Credit card debt reliefEligibility
Do you qualify?
The minimum debt, which debts count, what a hardship means and where we enroll clients today.
How to qualifySettlement is not a loan, and we do not sell loans.
You do not borrow to pay off your debts. You save, and each debt is paid off for a negotiated amount. Because we never earn anything from a loan, we have no reason to push you toward one.
What is debt settlement, exactly?
Debt settlement is an agreement with a creditor to accept less than the full balance as payment in full. A settlement company negotiates for you, one account at a time. The CFPB describes it (CFPB, opens in a new tab) the same way, and lists the same risks we do.
It works only for unsecured debt: credit cards, medical bills, personal loans and similar bills. It does not work for student loans, mortgages, car payments, other secured loans and income tax debt.
Settlement is one way out of debt, not the only one. Free nonprofit credit counseling is a good first call for many people.
How can you tell a settlement company plays fair?
Federal rules protect you here. Under the Telemarketing Sales Rule (eCFR, opens in a new tab), a debt settlement company cannot charge you until it has settled a debt and you have made at least one payment under that agreement. Check these five things before you sign with anyone.
- No fee until a debt is actually settled and you have paid under that settlement.
- Your savings sit in an account in your name, and you can take the money out.
- You see each settlement offer, and nothing is paid without your yes.
- The fee is in writing, as a percentage, before you enroll.
- The company tells you which states it can enroll in, and yours is one of them.
Is it right for you
Who debt settlement fits (and who it doesn’t)
Likely a good fit if
- You owe $10,000 or more in unsecured debt, with at least $500 per creditor
- You are behind on payments, or close to it, and minimums are not working
- You can set aside one monthly deposit into an account in your name
- You would rather negotiate than borrow more or file for bankruptcy
Probably not a fit if
- Your unsecured debt is under $10,000
- You could repay in full within a few years if the interest came down
- You need your credit score for a mortgage or car loan soon
- Your debt is a student loan, mortgage, car payment, other secured loan or income tax debt
- You live in a state where we are not enrolling yet
Compare options
Settlement next to the alternatives.
Settlement is one path out of debt. Here is how it compares, including where the others are the better choice.
| What we compare | What we do Debt settlement | Consolidation loan | Debt management plan | Bankruptcy |
|---|---|---|---|---|
| What it is | We negotiate each debt down; you pay the settled amounts from an account in your name. | A new loan pays off your old debts. You still owe the full balance. | A nonprofit credit counselor arranges lower interest; you repay the full balance. | A court process that can erase or restructure debt. |
| What it costs | The settled amounts plus our fee, charged only after a settlement is reached and shown as its own line. Forgiven debt may be taxable. | The full balance plus interest on the new loan, and any loan fees. | The full balance, usually with a small monthly fee. | Court and attorney fees. |
| How long | Most programs run 24 to 48 months. | The loan term, often several years. | Often 3 to 5 years. | Months (Chapter 7) or 3 to 5 years (Chapter 13). |
| Credit impact | Your score will drop during the program. | Needs good credit to qualify; can help if paid on time. | Usually a smaller dip; enrolled cards are often closed. | The largest impact, reported for 7 to 10 years. |
| Who it fits | $10,000 or more of unsecured debt you can't keep up with. | Good credit and income steady enough to repay in full. | You can repay in full if the interest comes down. | Debt you cannot repay in any realistic time. Talk to a bankruptcy attorney. |
If a debt management plan or bankruptcy fits you better, we will say so. Free nonprofit credit counseling is a good first call for many people.
Things you should know
The downsides, stated plainly.
Read these before you enroll anywhere, including with us. They apply to every debt settlement program.
- Your credit score will drop during the program, and late payments stay on your credit report.
- Creditors may keep collecting while you save, and they can sue. The program does not stop legal action.
- Interest and late fees can keep adding to your balances until each account settles.
- Forgiven debt may be taxable income. A creditor may send you IRS Form 1099-C.
- Fees apply. The fee is a percentage of your enrolled debt, set individually, and charged only after a settlement is reached.
- Not all creditors agree to settle, and not everyone completes the program.
- We do not guarantee any amount, percentage or timeline.
- Debt settlement is not available in all states. We are not a nonprofit or a credit counseling service, and we do not lend money.
- We do not give legal or tax advice. Talk to an attorney or a tax professional about your situation.
Notes on the figures and claims above
- 1Your credit score will drop during the program. Creditors may continue collection activity and can sue. Forgiven debt may be taxable income (IRS Form 1099-C). Fees apply. Not all creditors agree to settle. Most programs run 24 to 48 months.
- 2Figures on this site are illustrations, not offers or guarantees. Results vary; not all debts settle. Estimates assume creditors settle for 45 to 60% of enrolled balances (typical) or 80% (conservative, a 20% reduction), plus an illustrative fee of 20% of enrolled debt. The actual fee is a percentage of enrolled debt, set individually and charged only after a settlement is reached; your written agreement states it.
Straight answers
Debt settlement questions, answered straight.
Rather hear it from a person? 866-659-7966
How long does debt settlement take?
Most programs run 24 to 48 months. Accounts settle one at a time as your account grows, so some resolve early and some take longer.
How much does debt settlement cost?
You pay the settled amounts plus a fee. The fee is a percentage of your enrolled debt, set individually, and charged only after a settlement is reached. Every estimate shows it as its own line, in dollars.
Can a creditor still sue me?
Yes. Creditors may keep collecting while you save, and they can sue. If you get court papers, call us the same day, and consider talking to an attorney.
Will debt settlement hurt my credit?
Yes. Your score will drop during the program because accounts go unpaid while you save. Late payments can stay on your credit report for up to seven years.
Can I settle my debts myself?
Yes, you can call a creditor and ask for a settlement yourself, and some people do well that way. Get any agreement in writing before you pay.
Sources
Where the facts on this page come from. Each link opens the original in a new tab.
- 01 CFPB What is a debt relief program and how do I know if I should use one? (opens in a new tab)
- 02 eCFR 16 CFR 310.4: Abusive telemarketing acts or practices (the advance-fee ban) (opens in a new tab)
- 03 FTC Debt Relief Services and the Telemarketing Sales Rule: A Guide for Business (opens in a new tab)
- 04 CFPB How long does information stay on my credit report? (opens in a new tab)
- 05 IRS Topic no. 431, Canceled debt: Is it taxable or not? (opens in a new tab)
- 06 NFCC National Foundation for Credit Counseling (opens in a new tab)
Next step
See your numbers, then decide.
Check your state and see an illustrative estimate, fee included, before you share a phone number.
Four short steps
Your estimate first. Contact details last.
- 1How much you owea close guess is fine
- 2What kinds of debtpick all that apply
- 3Which state you live inchecked before anything else
- 4Your estimate, then a real person if you want one