If debt is starting to dominate your life, it might be time to turn to the best debt settlement companies. Such services will approach those you owe money to, and try to reach an agreement that will result in your debt being reduced. It may seem like a good option, but it’s important to consider that the charges levied by debt settlement companies are notoriously high, and that your credit score will take an enormous hit. It should also be remembered that debt settlement doesn’t mean your debt is eradicated altogether - you’ll still have borrowing to pay down, but hopefully it will be less than it was before.
As a result, debt settlement is usually seen as an option of almost last resort, and debt settlement companies have a duty to ensure that you’re aware of the potential consequences. For this reason, the best debt settlement companies will check whether you’ve already sought the assistance of a debt consolidation company. The best debt consolidation companies will provide a loan to a value that is high enough to pay off your outstanding debts - the aim is to leave borrowers with just the one larger but more easily manageable loan that they need to pay off. If the interest rate on offer is lower than the debt already owed, then the monthly payment needed to service the new loan should be lower than what was being paid out across all the previous loans combined before. Given debt consolidation is usually less expensive and nowhere near as detrimental to your credit rating than debt settlement, consolidation should be every struggling borrower’s first port of call - our guide comparing the two options in more depth reveals even more.
National Debt Relief is our top pick of debt settlement providers. As well as providing debt settlement, their debt councilors will also help you understand your debt management options.VIEW DEAL ON National Debt Relief
If debt settlement is the option that you definitely now need, making sure you approach the best debt settlement service for you is key. For this reason, our shortlist of the best debt settlement companies includes a selection that looks to keep its fees as low as possible, and another that specializes in the very largest of debt. There’s also a service that excels when it comes to negotiating with a significant amount of creditors all at once, and one which enjoys a good reputation among its peers - whatever your priorities, our rundown should include a debt settlement company that is appropriate for you.
Further notes on debt settlement
As we’ve already said, debt settlement is not the easy option that you turn to first. There are also a number of steps that you should take before you even turn to debt consolidation. Talking to those you are in debt to is a must, particularly as the coronavirus and resultant economic disruption has seen many companies adopt far more sympathetic stances when it comes to paying down debt. Shifting credit card debt to a 0% balance transfer card is another route to explore, as this could provide you more time to pay off what you owe without interest continuing to build up.
If you’ve already considered these alternatives, then maybe the best debt settlement companies are where you turn next. However, remember that this won’t put your liability for your debts on hold - if you don’t make payments while the debt settlement service is doing its work, your credit rating will continue to be affected and other parties, including debt collectors, could still get involved.
There are also no guarantees that the debt settlement company will be successful in negotiating your debt down. And finally, you must always make sure that the charges you’ll pay for the debt settlement service will be more than covered by the reduction in debt that is agreed - if not, there’s a chance you could end up in a worse position than where you started. To make sure you understand all of the above and the contract you are entering into, debt settlement companies are obliged to provide a free phone call to talk everything through. They are also not allowed to ask for fees at the start of the process.
As long as you’re aware of everything to look out for, the best debt settlement companies can provide the opportunity to help you better manage your debt. Continuing on the right path is the next challenge, but with the assistance of the debt counseling services that the best debt settlement companies provide, there is a chance you could eventually find yourself debt free.
1. National Debt Relief: Best debt settlement company overall
Based on our research and experience speaking with its representatives, National Debt Relief is our choice for the best debt settlement company. It has been in business for over five years and is AFCC accredited. This accreditation means that, among other things, its staff receives extensive training to establish the best debt resolution option for customers' needs.
Generally, the company deals with customers who have over $20,000 in debt to their name. NDR claims it achieves an average reduction of around 50%, which is a little lower than the average range for the sector, but this figure varies depending on your circumstances and the companies your credit is with. It charges fees that fall well within the industry average, standing at between 15% and 25%, which you'll need to add to the reduction.
Its customer service is very well regarded, though it doesn’t provide you with a single contact – you speak to any available customer service agent. However, this means you don’t have to wait as long to speak with someone or for someone to get back to you if you have a question.
National Debt Relief is admirably transparent about the risks associated with entering a settlement program. During your first call, it makes recommendations based on your financial situation and in some cases recommends you contact a credit counseling company or get a debt consolidation loan instead.
We found it to be one of the most transparent debt settlement companies we reviewed, and also found the advice offered excellent, which is why it tops our list.
- Read our National Debt Relief review
2. Freedom Debt Relief
With a broad range of industry accreditations, Freedom Debt Relief is a company that can help customers who are struggling to pay back a wide range of unsecured debts, including credit cards, loans, and store cards.
Things to note are that the company currently operates in 37 states and charges an average of 22% of the enrolled debt as a fee for settling. Freedom has been in operation for over 17 years and settles a whopping 50,000 accounts each month.
Also, it has an average minimum debt requirement of $7,500. Importantly, the staff are knowledgeable about the options on offer for clients, depending on their circumstances.
If you’re thinking about becoming a potential customer Freedom offers a free consultation, so you can work out if debt settlement is the right solution for you. These are usually carried out over the phone with an IAPDA-certified consultant. This means you will receive expert information and a good idea of whether debt settlement is the best move for you. The service is suggested for customers who are struggling to meet minimum payments on a monthly basis, and who are looking to avoid bankruptcy.
- Read our Freedom Debt Relief review
3. Accredited Debt Relief
Accredited Debt is essentially a broker for debt settlement companies. It takes a full look into your finances, including who your creditors are, to link you to settlement agencies that have the best chance of getting you a resolution.
It is a niche product in that it does not tackle your debt directly but instead has a list of negotiators that it works with. This could wield more results than a general firm so if you have a lot of unsecured debt with different providers this could be a good option.
There are some requirements, such as a minimum of $7500 in debt and it will expect you to hand over all of your high balance credit cards leaving you with just one in case of an emergency, usually the one with the lowest limit or under $500.
Once a contract is agreed the company will start to make contact with your creditors and settlements begin from as little as four to five months depending on the amount owed. However, the company does only operate in 32 states.
- Read our Accredited Debt Relief review
4. Guardian Debt Relief
Guardian Debt Relief tends to work with clients who have more than $10,000 in debt and help by negotiating a settlement agreement with creditors once your new settlement account has enough funds.
When you first ring you will go over your financial situation with an advisor and timelines will all be worked out before any paperwork is signed. The plans are custom-made for individuals and usually work to around 20% in charges of the total settled debt.
With large debts, the company has managed to reduce the amount by around 50% before fees, so there could be a significant saving involved. However, for more moderate amounts of debt the total debt settled tends to be between 30% to 40% lower than the original amount.
Guardian also charges an average monthly fee of $200, which will likely be put into your settlement account to go towards your final payments. The company has a standard minimum debt requirement of $7,500.
It is worth knowing that the service is not available in every state, so do check ahead of calling to make sure it operates where you're based. However, as a company, it does tend to have lower than average fees, and good settlement rates. It also has an approach that promotes education and getting people's financial lives back on track.
- Read our Guardian Debt Relief review
5. New Era Debt Solutions
With New Era Debt Solutions each client is assigned a personal account representative, who will work with them to find the right way to reduce their debts. However, programs with the company last around 28 months on average, with the range going from 12 to 48 months depending on people's circumstances.
There are some stipulations though, for instance the company does need each of the accounts you entrust it with to have over $750 worth of debt associated with them. This is a low minimum amount, making it a good option if you have a number of smaller debts.
The fees charged by New Era are lower than the industry average. There is also a low minimum debt amount for each loan. This means the services are available to a wide range of people with varying financial histories. The services are available in 47 states, making the company geographically very available too.
The fees charged for the service vary between 14% and 23% of the amount of debt you enroll in one of their programs. The average amount of debt the company is able to save for clients is 53%, which means that after fees are paid customers generally end up paying back 30% less than they would have without engaging New Era for debt settlement arrangements.
6. Pacific Debt Relief
Pacific Debt Relief offers each client a personal account representative, who will work with them to find the right solution to reduce their debts and ease the stress of monthly repayments
In order to work with Pacific you need to have a minimum total debt amount of $7,500, and each of the accounts you entrust the company with will need to have over $750 worth of debt associated with them. This is a low minimum amount for each account, making it a good option if you have lots of smaller debts.
The fees they charge for their service are average and vary between 15 and 25%. Customers are generally able to pay back 50% of the debt they initially owed after negotiation and before fees are taken.
- Read our Pacific Debt Inc. Review
7. DMB Financial
DMB Financial has been in business for 14 years, and has saved $1bn in debts for its clients since its start. The company's service is available in 26 states and is AFCC and IAPDA accredited. Fees can be a little above average, depending on your credit history, but the company does have links with some of the most well-known providers.
DMB Financial charges an average fee of 21.5% of the total settled debt. This means that when you pay off your loans or credit cards at the lower rate it negotiates for you, you will need to add on the fee that is paid for the service. This may be more or less than the debts you were due to pay. As per the legal requirement, there are no upfront fees, which is the industry standard.
- Read our DMB Financial review
National Debt Relief is the best debt settlement solution providers. Customer service and debt negotiation are provided in-house, and its average rate of debt reduction is the highest we've found.
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Beware of debt settlement scams
Debt settlement has its pitfalls. There are many scam debt settlement companies out there that can make an already difficult situation worse, instead of better. We’ve made sure that all the providers on our list of the best debt settlement companies are transparent and upfront with customers about the risks involved with these programs. They all also follow FTC regulations that prohibit advance fees.
Most importantly, the final settlement of your outstanding debt often relies on the type of relationship that the settlement company has with your creditor. So be prepared to do your research, look at the debt settlement company accreditation and don’t be afraid to ask questions. We've done as much of the hard work as we can for you, and the companies below represent some of the best debt settlement firms on the market. However, everyone's situation is different so make sure you ask specifically about the relationships the settlement company has with your specific creditors.
How a debt settlement program works
A debt settlement program can take between two and four years. It’s a long process with many steps. Here’s a breakdown of the entire process.
When you call a debt settlement company on our list, you’ll speak to an IAPDA certified debt specialist. They’ll go over your debt situation – whether you’re current on your payments, how much debt you have and how much you’re paying each month. Often they’ll do a soft pull on your credit to look at your individual creditors and how much you owe each of them.
Sign up and enroll
After you’ve agreed to start a program, the settlement company will evaluate your finances and figure out how much you can afford to put toward the program each month.
Stop paying creditors and make deposits
For a debt settlement plan to be effective, you’ll need to stop paying your creditors and deposit funds into the escrow account set up by the settlement company. These are the funds that will make up the settlement offers the debt relief company will make to your creditors.
Settlement company begins negotiations
After about six months the settlement company will begin negotiating with your creditors. They’ll make settlement offers and notify you if a settlement offer is accepted. The best settlement companies offer client portals that allow you to track your funds and settlement offers.
Pay the creditors (and the settlement companies)
Once your offer is accepted you’ll transfer the money from your account to your creditors. You’ll also pay the settlement company. Since 2010 the settlement industry has moved away from advance fees. You’ll pay a certain percentage of the debt they successfully settle. The amount varies depending on the state you live in, since some states have caps on the percentage they can charge.
How much does debt settlement cost?
The fee you pay a debt relief company is a percentage of the debt you want it to settle for you. Some states put caps on that percentage, but in general we saw a range of 15% to 25%.
One thing to note is that this is on top of what you pay your creditors. For example, if you settle $30,000 of debt for around $12,000 and the debt settlement company takes a fee of 20% on that debt, you’ll pay an additional $6,000 to the settlement company. So instead of saving 60% of your total debt, you’ll save 40%. It can still be worthwhile, but make sure to include the fees in your savings projections.
Another thing to keep in mind is that your debts are going to continue to accrue interest. It’s likely that because you stop making payments, you’ll late fees and penalty interest rates may also be added. In our interviews with debt settlement companies, they assured us that your monthly payment accounts for penalty rates and late fees.
In some cases they may be able to reach a settlement before you have enough to pay the settlement company’s fees. The settlement companies we interviewed all offer flexibility in these situations, letting you divide your payment into monthly installments.
How to settle debt yourself
You can settle debt yourself, without the assistance of a debt settlement company. In fact, some creditors refuse to work with settlement companies. However, it can be time-consuming to negotiate for yourself and may not be the best option if you have a lot of creditors to settle with.
DIY debt settlement follows a similar process to settling with the help of a company. You stop making payments and start saving up with the goal of making a discounted payment on your entire debt amount. To settle your debt, you need to be at least 90-days delinquent on your payments. The longer you’ve missed payments, the more likely your creditors will settle. After five months, your creditors will send your debt to collections agencies, which may make them more willing to settle with you.
Creditors typically prefer lump-sum payments, though in some cases you may be able to negotiate a reduced-cost payment plan. Also, it may be easier to negotiate a settlement if you’ve had a hardship like losing your job or a medical problem that keeps you from making regular payments.
Another reason to negotiate your own settlement is you won’t have to pay fees to a settlement company. Debt settlement companies take 15% to 25% of the amount you settle – if you use a company and settle for $10,000, you’ll also pay up to $2,500 in fees.
No matter how you settle your debt, it will hurt your credit. Late payments show up on your report no matter what you do, but when you negotiate, try to get your creditors to mark your debt as “Paid as Agreed” rather than “Settled.”
Is a debt consolidation loan a good option?
Another common option for dealing with debt is a debt consolidation loan. This is a personal loan you use to pay off your existing debt. By combining all your debts into one loan, you only have one monthly payment and one interest rate. You can find a debt consolidation loan through a bank or another lender. Some debt settlement companies also offer debt consolidation loans or work with third parties if they find a consolidation loan is the best option for you.
To be eligible for a consolidation loan, you need good credit. Lenders won’t approve loans if you have a score below 630, and you typically need a score of 720 or above to qualify for the best rates. Rates usually range from 13% to 30%, though you’ll end up saving some money since you only pay interest on one loan.
If you have poor credit and are worried you may not be approved for a loan, you can try to find someone to co-sign with you. Getting a co-signer increases the likelihood of getting approved, and if they have good credit, your loan will have a better rate. Keep in mind that a co-signer is also responsible for your loan, so if you miss payments, it affects their credit.
Another option for debt consolidation is a balance transfer credit card. Like a loan, you move existing balances onto one card with a single interest rate. As a bonus, the balance transfer card acts as a credit card you can use for emergencies. Keep an eye on balance transfer fees, which can be as much as 5%. Some cards only let you transfer a certain percent of the card’s balance, which can include fees.
How do different debt-relief methods affect credit scores?
There are many ways to manage your debt. However, many methods affect your credit score, some more adversely than others. If your debt load is out of control, your credit score may be the least of your worries. Still, it's good to consider what your score may look like after you take care of your debts.
Using a home equity loan or a personal loan to consolidate your debts has the least impact on your credit. You use the money you borrow to pay off your old debts and then just make payments on the new loan. Personal and home equity loans tend to have a neutral or positive effect on your credit. However, if income problems caused your debt, you may continue to struggle with your new loan.
If you opt to pay down your debt by making minimum payments, you may see a minor negative impact on your credit. You’ll continue getting credit for making on-time payments, but your score also factors in the amount of credit you utilize. As such, static or growing balances could lower your score. In addition, only making minimum payments is more expensive in the long run, since interest accrues and further increases your balances.
Opting for a debt settlement program may be a better option. This type of program allows you to pay off your debt for a reduced amount. To go this route, you need to stop making payments, which can lower your credit score by as much as 100 points. Once the debt relief company you hire settles your debts, they’ll be marked as “settled” on you credit report, which may affect your likelihood of being approved for credit in the future. Settled debt remains on your credit report for seven years.
Bankruptcy is the most drastic option, and it can lower your credit score by as much as 200 points. If you file Chapter 7 bankruptcy, it remains on your credit report for 10 years. A Chapter 13 bankruptcy stays for seven years. No matter which chapter you file, you may notice the effects, especially when you apply for new credit.