Credible takeaways
- You can hire a third-party company to negotiate your debt with creditors, but the process can be time-consuming, credit-damaging, and comes with no guarantees.
- Debt settlement usually involves credit cards, medical bills, and other types of unsecured debt, as opposed to secured debts, such as mortgages and auto loans.
- Debt settlement companies may charge you fees for the service, and your credit could suffer while the negotiations play out.
Having debt you can’t pay off can be overwhelming and harmful to your credit. Debt settlement may be an option if you’re behind on payments and can’t afford to pay the full amount. By negotiating with creditors, you could reduce what you owe and start a path toward financial relief.
But debt settlement isn’t a quick or easy fix. It can take time, impact your credit, and may require costly fees if you use a company to do it for you. Learn how the process works, its potential benefits and risks, and possible alternatives to decide whether it’s the right choice for your finances.
What is debt settlement?
Debt settlement is a process involving a third-party company that negotiates your debt with creditors. The goal is for you to pay less than the full amount of debt you owe. It usually involves unsecured debts, like credit cards and medical bills, rather than secured debts, like mortgages or car loans. Some people use debt settlement as an alternative to debt consolidation loans, which can sometimes be difficult to qualify for if you have a low credit score or limited income.
Debt settlement can help you reduce debt and avoid bankruptcy. But it can take three to four years to settle your debts, and there’s no guarantee that a company can settle any or all of your debt. It can also be expensive because companies often charge fees for debt settlement. Additionally, missed payments and settled accounts can damage your credit score.
Editor insight: “As an alternative to debt settlement, consider a personal loan to lower your monthly payments and save your credit.”
— Meredith Mangan, Senior Editor, Personal Loans
Advertiser DisclosureThe rates that appear are from companies from which Credible receives compensation. This compensation does not impact how or where products appear within the table. The rates and information shown do not include all financial service providers or all of the displayed lenders' available services and product offerings.
Credible rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. We collected thousands of data points on dozens of lenders for personal loans, mortgages, and student loans. Specific criteria vary by loan type, but generally include interest rates, loan terms, eligibility requirements, transparency, funding times, repayment options, fees, discounts, customer service, cosigner options, and more.
Read our full methodology.
Overview
LightStream is one of three Credible partner lenders to offer loan amounts up to $100,000, which makes it ideal for financing large expenses. Plus, average rates on LightStream personal loans were the lowest among all Credible partner lenders for borrowers with good, very good, and excellent credit, according to 12 months of Credible personal loans marketplace data. There are no origination fees or other fees, and loans can be used for a wide range of purposes
Funds can be available as soon as the same day you apply, and you could have up to 20 years to repay certain types of loans, including home improvement loans, RV loans, and boat loans.
Unlike most lenders, LightStream does not let you prequalify on its site — but you can prequalify through Credible. LightStream scored better than average in J.D. Power's 2025 U.S. Consumer Lending Satisfaction Study, beating out online lender SoFi by one position.
pros
- Same-day funding available
- High maximum loan amount
- No origination fee or other fees
- Allows co-borrowers
- Rate beat program
- Long repayment terms available
cons
- Good credit required
- Not available in Vermont
- No loans under $5,000
- Limited customer service
Repayment terms
2 - 20 years, depending on loan purpose
Eligibility
Available in all states except VT
Time to get funds
As soon as the same business day
Loan uses
Credit card refinancing, debt consolidation, home improvement, and other purposes
Read full reviewCredible rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. We collected thousands of data points on dozens of lenders for personal loans, mortgages, and student loans. Specific criteria vary by loan type, but generally include interest rates, loan terms, eligibility requirements, transparency, funding times, repayment options, fees, discounts, customer service, cosigner options, and more.
Read our full methodology.
Overview
Upgrade has a suite of features that make it a very attractive lender: competitive interest rates, discounts for direct pay and autopay, as soon as same-day funding, up to seven-year repayment terms, and nationwide availability. Plus, loans are available to fair-credit borrowers and borrowers with low annual incomes. Upgrade even offers secured personal loans, which is not common among lenders.
However, Upgrade does charge an origination fee of 1.85% to 9.99%.
pros
- Fair credit borrowers eligible
- Autopay and direct pay discounts
- Can fund in as little as 1 business day
- Mobile app
- Secured loans available
- Low annual income requirement
cons
- High maximum origination fee
- Cosigners not accepted on home improvement loans
Loan uses
Credit card refinancing, debt consolidation, home improvement, major purchase, other
Read full reviewCredible rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. We collected thousands of data points on dozens of lenders for personal loans, mortgages, and student loans. Specific criteria vary by loan type, but generally include interest rates, loan terms, eligibility requirements, transparency, funding times, repayment options, fees, discounts, customer service, cosigner options, and more.
Read our full methodology.
Overview
Happy Money has been in operation since 2009 (formerly known as Payoff). It's an option for fair-credit borrowers (plus those with better credit), and notably has a relatively low top-end APR. In other words, you could qualify for a lower rate with Happy Money with fair credit, relative to other lenders that offer fair-credit loans. The company does charge an origination fee on some loans, up to 5%, but that's not as high as some other lenders' origination fees.
You should be prepared to wait a few days to get your money, as funding can take 3 to 6 business days once approved. And loans aren't available in Massachusetts, Iowa, or Nevada. Happy Money has an A+ rating with the BBB and is ideal for debt consolidation and credit card consolidation loans.
pros
- Mobile app
- Live chat
- Low maximum APR
cons
- Limited loan terms available
- No discounts
- Origination fees
- Not available in IA, MA, or NV
Eligibility
Available in all states except IA, MA and NV
Time to get funds
As soon as 3 - 6 business days after verification
Loan uses
Debt consolidation and credit card consolidation only
Read full reviewCredible rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. We collected thousands of data points on dozens of lenders for personal loans, mortgages, and student loans. Specific criteria vary by loan type, but generally include interest rates, loan terms, eligibility requirements, transparency, funding times, repayment options, fees, discounts, customer service, cosigner options, and more.
Read our full methodology.
Overview
BHG Financial stands out for offering the largest loan amounts — up to $250,000 — of any Credible partner lenders. Simply put, if you need an unsecured personal loan over $100,000, there are very few places to look, but BHG is one. You'll have up to 10 years to repay the loan, but you'll need an annual income of at least $100,000 to qualify and a FICO score that's 660 or higher.
Loan amounts start at $20,000, so look elsewhere for small loans. And BHG charges a modest origination fee between 3% and 5%, depending on your financial profile. Loan funds are available in as few as 5 days, but could take over a week to process. Funds must be used for debt consolidation or credit card refinancing.
pros
- Eligible applicants can borrow up to $250,000
- Considers borrowers with fair credit
- Long repayment terms
cons
- Not available in all states
- No discounts
- Minimum annual income requirement of $100,000
- Funding takes at least five days
Fees
Origination fees, late fees, other fees may apply
Eligibility
Not available in all states
Loan uses
Debt consolidation, credit card refinancing
Read full reviewCredible rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. We collected thousands of data points on dozens of lenders for personal loans, mortgages, and student loans. Specific criteria vary by loan type, but generally include interest rates, loan terms, eligibility requirements, transparency, funding times, repayment options, fees, discounts, customer service, cosigner options, and more.
Read our full methodology.
Overview
SoFi personal loans feature high loan amounts, competitive interest rates, as soon as same-day funding, and long loan terms, plus discounts for autopay and direct pay. Plus, SoFi offers live chat and free financial advice for customers. Unlike many other online lenders, SoFi is an FDIC-insured bank, which means SoFi makes loans directly and does not partner with a third-party to originate loans. It also means that you could have your checking, savings, and loan accounts all in one place.
To qualify for an unsecured loan, it's best to have good credit. But unlike other lenders, SoFi doesn't specify a credit score minimum. It also has optional origination fees — you might elect to pay on to reduce your interest rate. Minimum loan amounts start at $5,000.
pros
- Large loan amounts available
- Autopay and direct pay discounts
- Same day funding
- Long loan terms available
cons
- Not transparent about minimum credit score requirements
- 5,000 minimum loan amount
Fees
Option to pay an origination fee in exchange for a lower rate
Time to get funds
Typically within a few days, given approval and bank account verification, but sometimes within the same day
Loan uses
Solely for personal, family, or household uses
Read full reviewCredible rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. We collected thousands of data points on dozens of lenders for personal loans, mortgages, and student loans. Specific criteria vary by loan type, but generally include interest rates, loan terms, eligibility requirements, transparency, funding times, repayment options, fees, discounts, customer service, cosigner options, and more.
Read our full methodology.
Overview
Avant personal loans are a good choice for borrowers with bad credit looking for small- to moderate-sized personal loans. Loans are available up to $35,000 and you could get the money as soon as the next business day after approval. Plus, Avant is more likely than some lenders to approve the applications of borrowers who've prequalified with Avant. However, the lender charges an origination fee up to 9.99%, and its top-range interest rates are among the highest of the lenders we reviewed.
pros
- Borrowers with bad credit considered
- Funds as soon as the next business day
- 2-year loan terms available
cons
- No discounts offered
- Origination fee
- Not available in HI, IA, MA, ME, NY, VT, WV, WA, AP, AE, and AA
Fees
Origination fee, late fee, dishonored payment fee
Eligibility
Available in all states except HI, IA, MA, ME, NY, VT, WV, WA, AP, AE, and AA
Time to get funds
As soon as the next business day (if approved by 4:30 p.m. CT on a weekday)
Loan uses
Debt consolidation, emergency expense, life event, home improvement, and other purposes
Read full reviewCredible rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. We collected thousands of data points on dozens of lenders for personal loans, mortgages, and student loans. Specific criteria vary by loan type, but generally include interest rates, loan terms, eligibility requirements, transparency, funding times, repayment options, fees, discounts, customer service, cosigner options, and more.
Read our full methodology.
Overview
Reprise may be an excellent option if you need a loan with bad credit. Not only does it offer bad credit loans, but the lender delivered the lowest rates, on average, to borrowers with bad credit compared to other Credible partners offering loans for bad credit. (Average interest rates are based on Credible personal loans data across credit score tiers over the last 12 months.) The lender also offers secured loans as well as some cosigned loans to help you qualify.
Reprise loans are a great options for emergencies as loan funds can be available the next business day once you’re approved. Plus, the company has a 4.7 Trustpilot rating and a 4.16 customer rating on BBB (the Better Business Bureau) — indicating satisfied customers.
But Reprise is not for everyone. Available loan amounts are capped at a relatively low $25,000, Reprise may charge an origination fee, and there are no discounts for autopay or direct pay to creditors when using the loan to consolidate debt.
pros
- Loans for bad credit
- 4.7 Trustpilot rating
- Secured loans available
- Cosigners considered
- Next-day funding available
- Easy to contact
cons
- Does not accept self-employment income as a primary income source
- Relatively low maximum loan amount
- Origination fees up to 6%
- Not available nationwide
- No discounts for autopay or direct pay
Loan amount
$2,500 to $25,000 (Minimum $5,000 for OH, Minimum $3,500 for GA)
Fees
$15 late fee except where the state has a different limit (ie. NM), return payment fees - $20 except where state has a different limit (ie – NM), and no prepayment penalty
Eligibility
Unavailable in CO, CT, HI, IA, ME, MD, MA, NV, NJ, NY, SD, VT, WA, and WV
Time to get funds
1-7 business days depending on loan security type
Loan uses
Credit card refinancing, debt consolidation, emergencies, major purchases, medical and dental expenses, moving expenses, special occasions, unexpected expenses, vacation and travel
Read full reviewCredible rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. We collected thousands of data points on dozens of lenders for personal loans, mortgages, and student loans. Specific criteria vary by loan type, but generally include interest rates, loan terms, eligibility requirements, transparency, funding times, repayment options, fees, discounts, customer service, cosigner options, and more.
Read our full methodology.
Overview
Universal Credit offers loan amounts up to $50,000, repayment terms up to seven years, and discounts for direct pay and autopay. Funds are available as soon as the next business day after loan approval.
Note that rates and fees can be relatively high — you may pay an origination fee from 5.25% to 9.99%, and APRs start at 11.69%. If you get a loan with a high interest rate, consider refinancing your personal loan at a lower rate once you've improved your credit score.
pros
- Borrowers with low credit scores considered
- $25,000 annual income requirement
- Autopay and direct pay discounts available
- Can fund in one business day
cons
- High APRs
- Potentially high origination fees
- Not available in Iowa
Time to get funds
As soon as 1 business day after acceptance
Loan uses
Debt consolidation, pay off credit cards, home improvements, unexpected expenses, home and auto repairs, weddings, and other major purchases
Read full reviewCredible rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. We collected thousands of data points on dozens of lenders for personal loans, mortgages, and student loans. Specific criteria vary by loan type, but generally include interest rates, loan terms, eligibility requirements, transparency, funding times, repayment options, fees, discounts, customer service, cosigner options, and more.
Read our full methodology.
Overview
LightStream is one of three Credible partner lenders to offer loan amounts up to $100,000, which makes it ideal for financing large expenses. Plus, average rates on LightStream personal loans were the lowest among all Credible partner lenders for borrowers with good, very good, and excellent credit, according to 12 months of Credible personal loans marketplace data. There are no origination fees or other fees, and loans can be used for a wide range of purposes
Funds can be available as soon as the same day you apply, and you could have up to 20 years to repay certain types of loans, including home improvement loans, RV loans, and boat loans.
Unlike most lenders, LightStream does not let you prequalify on its site — but you can prequalify through Credible. LightStream scored better than average in J.D. Power's 2025 U.S. Consumer Lending Satisfaction Study, beating out online lender SoFi by one position.
pros
- Same-day funding available
- High maximum loan amount
- No origination fee or other fees
- Allows co-borrowers
- Rate beat program
- Long repayment terms available
cons
- Good credit required
- Not available in Vermont
- No loans under $5,000
- Limited customer service
Repayment terms
2 - 20 years, depending on loan purpose
Eligibility
Available in all states except VT
Time to get funds
As soon as the same business day
Loan uses
Credit card refinancing, debt consolidation, home improvement, and other purposes
Read full reviewCredible rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. We collected thousands of data points on dozens of lenders for personal loans, mortgages, and student loans. Specific criteria vary by loan type, but generally include interest rates, loan terms, eligibility requirements, transparency, funding times, repayment options, fees, discounts, customer service, cosigner options, and more.
Read our full methodology.
Overview
Upgrade has a suite of features that make it a very attractive lender: competitive interest rates, discounts for direct pay and autopay, as soon as same-day funding, up to seven-year repayment terms, and nationwide availability. Plus, loans are available to fair-credit borrowers and borrowers with low annual incomes. Upgrade even offers secured personal loans, which is not common among lenders.
However, Upgrade does charge an origination fee of 1.85% to 9.99%.
pros
- Fair credit borrowers eligible
- Autopay and direct pay discounts
- Can fund in as little as 1 business day
- Mobile app
- Secured loans available
- Low annual income requirement
cons
- High maximum origination fee
- Cosigners not accepted on home improvement loans
Loan uses
Credit card refinancing, debt consolidation, home improvement, major purchase, other
Read full reviewCredible rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. We collected thousands of data points on dozens of lenders for personal loans, mortgages, and student loans. Specific criteria vary by loan type, but generally include interest rates, loan terms, eligibility requirements, transparency, funding times, repayment options, fees, discounts, customer service, cosigner options, and more.
Read our full methodology.
Overview
Happy Money has been in operation since 2009 (formerly known as Payoff). It's an option for fair-credit borrowers (plus those with better credit), and notably has a relatively low top-end APR. In other words, you could qualify for a lower rate with Happy Money with fair credit, relative to other lenders that offer fair-credit loans. The company does charge an origination fee on some loans, up to 5%, but that's not as high as some other lenders' origination fees.
You should be prepared to wait a few days to get your money, as funding can take 3 to 6 business days once approved. And loans aren't available in Massachusetts, Iowa, or Nevada. Happy Money has an A+ rating with the BBB and is ideal for debt consolidation and credit card consolidation loans.
pros
- Mobile app
- Live chat
- Low maximum APR
cons
- Limited loan terms available
- No discounts
- Origination fees
- Not available in IA, MA, or NV
Eligibility
Available in all states except IA, MA and NV
Time to get funds
As soon as 3 - 6 business days after verification
Loan uses
Debt consolidation and credit card consolidation only
Read full reviewCredible rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. We collected thousands of data points on dozens of lenders for personal loans, mortgages, and student loans. Specific criteria vary by loan type, but generally include interest rates, loan terms, eligibility requirements, transparency, funding times, repayment options, fees, discounts, customer service, cosigner options, and more.
Read our full methodology.
Overview
BHG Financial stands out for offering the largest loan amounts — up to $250,000 — of any Credible partner lenders. Simply put, if you need an unsecured personal loan over $100,000, there are very few places to look, but BHG is one. You'll have up to 10 years to repay the loan, but you'll need an annual income of at least $100,000 to qualify and a FICO score that's 660 or higher.
Loan amounts start at $20,000, so look elsewhere for small loans. And BHG charges a modest origination fee between 3% and 5%, depending on your financial profile. Loan funds are available in as few as 5 days, but could take over a week to process. Funds must be used for debt consolidation or credit card refinancing.
pros
- Eligible applicants can borrow up to $250,000
- Considers borrowers with fair credit
- Long repayment terms
cons
- Not available in all states
- No discounts
- Minimum annual income requirement of $100,000
- Funding takes at least five days
Fees
Origination fees, late fees, other fees may apply
Eligibility
Not available in all states
Loan uses
Debt consolidation, credit card refinancing
Read full reviewCredible rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. We collected thousands of data points on dozens of lenders for personal loans, mortgages, and student loans. Specific criteria vary by loan type, but generally include interest rates, loan terms, eligibility requirements, transparency, funding times, repayment options, fees, discounts, customer service, cosigner options, and more.
Read our full methodology.
Overview
SoFi personal loans feature high loan amounts, competitive interest rates, as soon as same-day funding, and long loan terms, plus discounts for autopay and direct pay. Plus, SoFi offers live chat and free financial advice for customers. Unlike many other online lenders, SoFi is an FDIC-insured bank, which means SoFi makes loans directly and does not partner with a third-party to originate loans. It also means that you could have your checking, savings, and loan accounts all in one place.
To qualify for an unsecured loan, it's best to have good credit. But unlike other lenders, SoFi doesn't specify a credit score minimum. It also has optional origination fees — you might elect to pay on to reduce your interest rate. Minimum loan amounts start at $5,000.
pros
- Large loan amounts available
- Autopay and direct pay discounts
- Same day funding
- Long loan terms available
cons
- Not transparent about minimum credit score requirements
- 5,000 minimum loan amount
Fees
Option to pay an origination fee in exchange for a lower rate
Time to get funds
Typically within a few days, given approval and bank account verification, but sometimes within the same day
Loan uses
Solely for personal, family, or household uses
Read full reviewCredible rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. We collected thousands of data points on dozens of lenders for personal loans, mortgages, and student loans. Specific criteria vary by loan type, but generally include interest rates, loan terms, eligibility requirements, transparency, funding times, repayment options, fees, discounts, customer service, cosigner options, and more.
Read our full methodology.
Overview
Avant personal loans are a good choice for borrowers with bad credit looking for small- to moderate-sized personal loans. Loans are available up to $35,000 and you could get the money as soon as the next business day after approval. Plus, Avant is more likely than some lenders to approve the applications of borrowers who've prequalified with Avant. However, the lender charges an origination fee up to 9.99%, and its top-range interest rates are among the highest of the lenders we reviewed.
pros
- Borrowers with bad credit considered
- Funds as soon as the next business day
- 2-year loan terms available
cons
- No discounts offered
- Origination fee
- Not available in HI, IA, MA, ME, NY, VT, WV, WA, AP, AE, and AA
Fees
Origination fee, late fee, dishonored payment fee
Eligibility
Available in all states except HI, IA, MA, ME, NY, VT, WV, WA, AP, AE, and AA
Time to get funds
As soon as the next business day (if approved by 4:30 p.m. CT on a weekday)
Loan uses
Debt consolidation, emergency expense, life event, home improvement, and other purposes
Read full reviewCredible rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. We collected thousands of data points on dozens of lenders for personal loans, mortgages, and student loans. Specific criteria vary by loan type, but generally include interest rates, loan terms, eligibility requirements, transparency, funding times, repayment options, fees, discounts, customer service, cosigner options, and more.
Read our full methodology.
Overview
Reprise may be an excellent option if you need a loan with bad credit. Not only does it offer bad credit loans, but the lender delivered the lowest rates, on average, to borrowers with bad credit compared to other Credible partners offering loans for bad credit. (Average interest rates are based on Credible personal loans data across credit score tiers over the last 12 months.) The lender also offers secured loans as well as some cosigned loans to help you qualify.
Reprise loans are a great options for emergencies as loan funds can be available the next business day once you’re approved. Plus, the company has a 4.7 Trustpilot rating and a 4.16 customer rating on BBB (the Better Business Bureau) — indicating satisfied customers.
But Reprise is not for everyone. Available loan amounts are capped at a relatively low $25,000, Reprise may charge an origination fee, and there are no discounts for autopay or direct pay to creditors when using the loan to consolidate debt.
pros
- Loans for bad credit
- 4.7 Trustpilot rating
- Secured loans available
- Cosigners considered
- Next-day funding available
- Easy to contact
cons
- Does not accept self-employment income as a primary income source
- Relatively low maximum loan amount
- Origination fees up to 6%
- Not available nationwide
- No discounts for autopay or direct pay
Loan amount
$2,500 to $25,000 (Minimum $5,000 for OH, Minimum $3,500 for GA)
Fees
$15 late fee except where the state has a different limit (ie. NM), return payment fees - $20 except where state has a different limit (ie – NM), and no prepayment penalty
Eligibility
Unavailable in CO, CT, HI, IA, ME, MD, MA, NV, NJ, NY, SD, VT, WA, and WV
Time to get funds
1-7 business days depending on loan security type
Loan uses
Credit card refinancing, debt consolidation, emergencies, major purchases, medical and dental expenses, moving expenses, special occasions, unexpected expenses, vacation and travel
Read full reviewCredible rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. We collected thousands of data points on dozens of lenders for personal loans, mortgages, and student loans. Specific criteria vary by loan type, but generally include interest rates, loan terms, eligibility requirements, transparency, funding times, repayment options, fees, discounts, customer service, cosigner options, and more.
Read our full methodology.
Overview
Universal Credit offers loan amounts up to $50,000, repayment terms up to seven years, and discounts for direct pay and autopay. Funds are available as soon as the next business day after loan approval.
Note that rates and fees can be relatively high — you may pay an origination fee from 5.25% to 9.99%, and APRs start at 11.69%. If you get a loan with a high interest rate, consider refinancing your personal loan at a lower rate once you've improved your credit score.
pros
- Borrowers with low credit scores considered
- $25,000 annual income requirement
- Autopay and direct pay discounts available
- Can fund in one business day
cons
- High APRs
- Potentially high origination fees
- Not available in Iowa
Time to get funds
As soon as 1 business day after acceptance
Loan uses
Debt consolidation, pay off credit cards, home improvements, unexpected expenses, home and auto repairs, weddings, and other major purchases
Read full reviewHow does debt settlement work?
When you work with a debt settlement company, the company will usually tell you to stop making payments to your creditors. This helps the debt settlement company negotiate your debts, as many creditors won’t negotiate unless you’re behind on payments.
You’ll make monthly payments to the debt settlement company rather than to your creditors. The money goes into a dedicated account to build up a settlement fund. The debt settlement company offers the money in a dedicated account to attempt to settle with your creditors.
This process can take months or several years, depending on how much debt you have. During this time, interest and late fees could still accrue on your unpaid accounts and increase your balances.
Creditors aren’t required to agree to any settlements from the debt settlement company. Instead, they could pursue legal action against you or transfer your account to a debt collection agency.
Debt settlement vs. debt management plan
Debt settlement and debt management plans (DMPs) can both provide debt relief, but they differ in how they work.
Debt settlement’s primary focus is lowering the amount of debt you owe, while a DMP aims to help you pay off your debt in full but with more manageable payments and terms. A DMP might be able to lower your interest rates or monthly payments, for example. You would make one monthly payment toward your DMP rather than paying creditors separately, but unlike debt settlement, your creditors still receive continuous payments through the DMP.
Say you have $10,000 in credit card debt and can’t keep up with your monthly payments.
- Debt settlement company: You stop paying your creditors. Instead, you save money in a dedicated debt settlement account until a settlement amount is negotiated. Then, the debt settlement company uses the funds in the account to pay a lump sum to your creditors. If the creditors agree to settle for, say, $6,000 total, that (plus the debt settlement company’s fee) is all you would need to pay. But since you stop paying on your accounts (in order to make a settlement offer more attractive to creditors), you could severely harm your credit.
- Debt management plan: A credit counselor with a nonprofit credit counseling agency negotiates with your creditors to lower your interest rates and possibly reduce fees, thereby reducing the size of your payments. Instead of paying creditors directly, you make monthly payments to the credit counseling agency, which splits the payment among your creditors until you pay off the balances.
Both services charge fees, although DMP fees are typically much more affordable. With a DMP, expect to pay a one-time setup or enrollment fee between $30 and $75 and a monthly fee of $25 to $35. Debt settlement companies usually charge 15% to 25% of the amount they settle.

Important
Fees charged by debt settlement and debt management companies can vary by state. Note that numbers cited by companies may represent average fees, so you could pay more or less. Check the terms and conditions of any agreement before signing.
Read More: Debt Relief Programs: Options to Reduce Debt
Pros and cons of debt settlement
Debt settlement can help you get your debt under control, but it comes with risks that could have long-term effects on your credit and finances.

Pros
- Reduce what you owe
- Avoid bankruptcy
- Choose which debts to enroll
- Provides you with an advocate

Cons
- No settlement guarantees
- Potential for charge-offs and legal consequences
- Collector calls
- Costly fees
- Can impact credit
- Tax consequences
- Lengthy process
Pros
- Reduce what you owe: Debt settlement lets you negotiate with creditors to pay less than your full balance, potentially saving thousands of dollars.
- Avoid bankruptcy: Settling your debt could help you avoid bankruptcy.
- Choose which debts to enroll: You don't need to enroll all debts with a debt settlement company. “Many people have at least one credit card they think is manageable or has a low balance, so debt settlement allows you to try to keep that account open,” says Ashley F. Morgan, attorney and owner of Ashley F. Morgan Law, PC, a law office focused on bankruptcy and debt management solutions.
- Provides you with an advocate: If you don't like negotiating or lack expertise in financial matters, a debt settlement plan lets professionals negotiate on your behalf.
Cons
- No settlement guarantees: Creditors aren't obligated to accept a settlement offer from you or a debt settlement company. There's no guarantee debt settlement will work.
- Potential for charge-offs and legal consequences: Stopping payments during debt settlement can lead to legal action or debt collection if your debt goes unpaid for too long.
- Collector calls: If you want to avoid calls from creditors and collection agencies, debt settlement may not be for you. Since the process hinges on your accounts becoming delinquent, you could be contacted regularly until a settlement is reached.
- Costly fees: It's free to settle debts on your own, but debt settlement companies often charge 15% to 25% of your settled debt, as well as administrative fees.
- Can impact credit: Missed payments and settled accounts can appear as negative marks on your credit report and lower your credit score for up to 7 years, which could make it tough to qualify for new credit.
- Tax consequences: “Any debt that is forgiven can be considered taxable income,” warns Morgan. This could affect how much you owe in taxes.
- Lengthy process: Debt settlement typically takes 3 to 4 years.

Tip
Settled debts typically stay on your credit report for seven years. During that time, you may have trouble qualifying for personal loans, credit cards, and other new credit.
How to negotiate debt settlement on your own
Negotiating and settling debt yourself can help you avoid the fees debt settlement companies charge.
To prepare, open a separate bank account for any money you want to put toward settlements. “You also want to budget in a buffer,” says Morgan. “If you expect your creditors to accept a 50% settlement, you want to budget around having 60% to 65% of the balances in funds to ensure that you can handle any settlements that are higher than anticipated.”
Follow these steps to negotiate a settlement:
- Assess your debt: List your debts and the length of time they've been past due. Creditors may be more likely to settle older, delinquent accounts, particularly those that may be approaching the statute of limitations for legal action.
- Decide what to offer: Calculate what you can reasonably afford. This way, you'll know the budget you need to stick to when you're ready to negotiate.
- Contact your creditors: Explain your financial hardship and your suggested settlement amount to your creditors. Document all communications.
- Agree in writing: If a creditor agrees to settle your debt, request a written agreement with all negotiated terms. Confirm that the creditor will report your on-time payment to at least one credit bureau.
- Pay your settlement: Make your payment on time and keep a record of any payments made to creditors.

Good to know
Most states have statutes of limitations that limit the amount of time a creditor can take legal action to collect on some debts, usually three to six years.
Types of debt settlement companies
Debt settlement companies are generally for-profit, but some nonprofit organizations might offer limited forms of debt settlement for lower fees and with less risk. For example, InCharge Debt Solutions, a nonprofit credit counseling agency, has a credit card debt forgiveness program with monthly payments rather than a lump-sum settlement. But debt relief programs and “debt settlement” available through nonprofit organizations may be just another name for that agency’s debt management programs.
How to choose a debt settlement company
Knowing what to look for in a debt settlement company can help you find a reputable service and avoid scams.
“Choosing a debt settlement company is a lot like buying a new car,” says Howard Dvorkin, a CPA, debt solutions author, and the founder and chairman of Debt.com. “You research price, reliability, and safety.”
Steer clear of unreasonable promises, like guaranteeing to wipe out your debt. Legitimate companies acknowledge that results vary for each person.
Before you commit to a for-profit debt settlement company, search for agencies approved by the National Foundation for Credit Counseling or the Financial Counseling Association of America for guidance from a licensed credit counselor. These organizations connect you to agencies with free consultations and recommendations unique to your financial situation. There may be other options available to you besides debt settlement.
Debt settlement alternatives
Debt settlement isn’t the only way to manage overwhelming debts. Here are a few additional options.
Pay off your debt
There are many ways to pay off debt, so it’s possible that you just haven’t found the right solution yet.
One way is the debt avalanche method. List your current debts, placing them in order from highest interest rate to lowest interest rate. Pay as much as you can — preferably more than the minimum payment — on the highest-interest debt each month while making minimum payments on your other debts. Once you pay off the highest-interest debt, move to the next-highest on the list and continue until you’ve paid off each debt.
There’s also the debt snowball method, which focuses on paying off your smallest debts first rather than high-interest debts. The debt snowball can be a better option if you are motivated by paying off a debt quickly, while the debt avalanche is recommended for people with high-interest loans who want to save money on interest.
Morgan also suggests contacting your credit card companies if there are one or two accounts you’re having difficulty paying. “Many credit card companies consider lowering interest and payments if you close your account,” says Morgan. “It isn't lowering the balance but does tend to make the debt more manageable.”
Use a credit counselor
A credit counselor can provide an unbiased review of your credit and debts to help you solve your underlying financial problem. You can work with one to create a DMP, solidify a budget, or get financial advice. Plus, says Dvorkin, “If they suggest debt-busting plans that come with fees, the law requires them to spell it out and not pressure you into doing anything that isn’t right for you.”
Get a debt consolidation loan
A debt consolidation loan pays off multiple debts, allowing you to make one monthly payment toward your loan rather than several debts.
For a debt consolidation loan to save you money, it should have a lower annual percentage rate (APR) than the average weighted APR of your included debts. Here’s how to find your average weighted APR:
- Add the balances of your debts.
- Multiply each balance by its APR.
- Add the products together.
- Divide that number by the sum of your debt balances.
- Multiply this number by 100 to find your average weighted APR.
But in some cases, a loan with an equivalent APR and longer repayment term could lower monthly payments — giving you breathing room to improve your credit and later refinance your debt to a lower rate.
Learn more: Debt Consolidation vs. Debt Settlement: Which Is Best for You?
FAQ
Is a debt settlement a good idea?
Open
Debt settlement might be a good alternative to bankruptcy if you have a lot of debt you can’t pay in full. But it also comes with risks, like damage to your credit score and costly fees. Before choosing debt settlement, weigh its long-term impact on your finances and explore other options, like credit counseling or debt consolidation.
Does debt settlement hurt your credit score?
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Yes, settling debt can hurt your credit score because the process involves missed payments and settling for less than you owe. It could take years to rebuild your credit after settling your debt.
How long does the debt settlement process typically take?
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Debt settlement often takes three to four years, although it could take more or less time depending on how much debt you have and how quickly you can save money toward your settlement plan.
Can I still use my credit card after debt settlement?
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Some creditors may let you keep your credit card open after settling a debt, but many will close your account to prevent you from taking on more debt after a settlement. Credit card companies may also freeze your credit card if you enroll in a debt management program.
Meet the expert:
Amy Boyington
Amy Boyington has covered personal finance for more than eight years. She's an expert on education and financial literacy.