Debt settlement risks and credit impact

Yes. The CFPB says plainly (CFPB, opens in a new tab) that using debt settlement can hurt your credit scores and your ability to get credit in the future. The damage comes mostly from the months before a settlement, not from the settlement itself.

During a program, the deposit that used to go to your creditors goes into your own account instead. Each month an enrolled account goes unpaid, the creditor can report it as late.

Nobody can tell you in advance how many points you will lose. It depends on your score today, how many accounts you enroll and how far behind they already are.

Enrolled accounts usually move through the same stages. Knowing them in advance makes the letters and calls less of a shock.

They may. A settlement program does not stop collection activity, and you should expect calls and letters while you save. We negotiate with your creditors, but we cannot make them stop contacting you.

You do have rights. A collector must give you key facts about the debt (CFPB, opens in a new tab), such as who it is owed to and how much, and Regulation F (eCFR, opens in a new tab) limits how often a collector can call you.

Keep a simple log of who called and when. If a collector breaks the rules, you can complain to the CFPB (CFPB, opens in a new tab) about it, and tell us so we know where each account stands.

Yes. The FTC warns (FTC, opens in a new tab) that you could be sued while you wait for a settlement, and that a creditor who wins may be able to garnish your wages or put a lien on your home. Our program will not prevent legal action.

If you are served, do not ignore it. The CFPB advises (CFPB, opens in a new tab) responding by the court deadline, because missing it can lead to a default judgment against you.

They can. We cannot stop a creditor from adding interest or late fees, and the CFPB notes (CFPB, opens in a new tab) that when you stop paying a credit card, those charges are added to the debt each month.

This matters for your numbers. A settlement is negotiated on the balance at the time, which may be higher than when you enrolled. The fee is a separate cost on top.

Some will not. The FTC is clear (FTC, opens in a new tab) that creditors have no obligation to negotiate, and some refuse to work with settlement companies at all. Others settle only after long delays.

If a creditor refuses, we tell you, and we talk through your options for that account. That can mean paying it directly, leaving it out of the program, or looking at another route for it.

Slowly, and with steady habits. According to the CFPB (CFPB, opens in a new tab), most negative information can be reported for seven years. Scores can recover over time as newer, on-time payments build up.

We cannot promise how fast your score will return, and no honest company can.

Weigh all of this against what you could save, using our debt settlement guide. Most programs run 24 to 48 months, and the credit cost comes first. If the trade still makes sense, see your own estimate.