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The best debt settlement companies of 2020

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For those struggling with their bills and unable to stay on top of debt payments, working with a debt settlement company may offer a solution.

A debt settlement company typically contacts lenders or creditors on your behalf and works to negotiate a lower payoff amount for unsecured debt such as credit cards. Typically, you’ll make deposits to a savings account that the debt settlement firm will use to pay off your debts. You’ll also need to stop using the credit card or line of credit that the debt-reduction program is targeting.

Here are some of the best debt settlement companies and things to keep in mind before signing on for a debt resolution program. All of the debt settlement companies listed below have a Better Business Bureau rating of A+. In addition, nearly all of them have been accredited by other industry watchdog organizations.

Best debt settlement companies of 2020

  • Accredited Debt Relief: Best for money back guarantee
  • National Debt Relief: Best for program transparency
  • New Era Debt Solutions: Best for effective and timely settlement negotiations
  • Pacific Debt Inc.: Best for consumer-friendly service

Best for money back guarantee: Accredited Debt Relief

In business for more than a decade, Accredited Debt Relief receives top marks from a variety of industry and consumer organizations. It has been accredited by the American Fair Credit Council. In addition, Accredited Debt Relief has earned excellent ratings on customer review sites such as Trustpilot and Best Company.

The company handles only unsecured debts such as credit cards, department store cards and medical bills. Its programs range from 12 to 48 months.

Accredited Debt Relief offers a money back guarantee. Customers are able to cancel their debt resolution program at any time without penalties or obligations and will receive a refund of any money that was invested toward a potential settlement, minus fees. Accredited Debt Relief customers also have the opportunity to approve all settlements negotiated on their behalf.

Best for program transparency: National Debt Relief

While many debt settlement companies do not reveal a great deal of information on their websites about fees or program details, National Debt Relief provides an admirable level of transparency.

The company, which settles debts on credit cards, department store cards, personal loans and medical bills, notes that consumers must have at least $7,500 in unsecured debt. The company says the average client typically pays a fee of 15 to 25 percent of total debt enrolled once your debt is settled by National Debt Relief.

All of National Debt Relief’s debt arbitrators have been accredited through the International Association of Professional Debt Arbitrators (IAPDA). In addition, National Debt Relief, which has been in business since 2008, is a member of the American Fair Credit Council. That means it goes through regular audits to ensure the quality of its services. National Debt Relief is also accredited by the Better Business Bureau.

Best for effective and timely settlement negotiations: New Era Debt Solutions

In business since 1999, New Era Debt Solutions has settled more than $250 million in debt for clients. It also holds numerous industry accreditations including from the American Fair Credit Council and Better Business Bureau.

New Era provides customers with personal debt counselors and an in-house team that will be your contacts for the life of your service contract.

There are no upfront fees with New Era Debt Solutions, and the company has a track record of settling accounts for an average of 42.87 percent of the account balance at the time of settlement. Some initial settlements can occur within just 90 days or sooner. Cases, on average, are completed in just 27.7 months.

The company handles unsecured debts such as credit cards, department store cards, signature loans and private student loans in default.

Best for consumer-friendly experience: Pacific Debt Inc.

Pacific Debt has settled more $250 million in debt during its 18 years in business. The company possesses a BBB Accredited A+ rating and is also an accredited member of the American Fair Credit Council.

Pacific Debt does not charge any upfront fees. All costs associated with its program are linked to performance.

The company prides itself on the level of service offered to clients throughout the process. This begins with enrollment, during which an adviser works with prospective clients to determine if debt settlement is a good choice. Advisers will review your accounts and even help complete a detailed budget to ensure the program will be affordable. Once debt settlement negotiations are underway, customers are assigned a personal account manager.

Pacific Debt typically resolves cases in 24 to 48 months. It will negotiate debts associated with credit cards, personal loans, payday loans, medical bills and balances on repossessed vehicles. Typically, a minimum debt balance of $10,000 is required.

What do debt settlement companies do?

The primary purpose of debt settlement companies is to negotiate on your behalf with creditors or lenders. The goal is to settle your enrolled debts for a lower amount than your enrolled account balances.

“Debt settlement companies are companies that aim to help consumers pay a fraction of what they owe to their creditors,” says Ash Exantus, director of financial education and financial empowerment coach for BankMobile.  “The premise of the company is that if you allow them to negotiate your debt for you, you’ll save money by not having to pay the full amount.”

Seeking the help of a debt settlement company should be considered carefully, however, and often only after exhausting other possible options. While there are benefits to using this approach, there are also plenty of risks and drawbacks.

“Debt settlement is best suited for consumers who are struggling to make minimum payments,” says Sean Fox, co-president of Freedom Debt Relief. “Debt settlement candidates also have generally suffered a serious financial hardship such as a loss of a job, loss of a loved one, divorce, or a major, unexpected medical expense that makes it difficult to have any extra income to put toward debt repayment.”

How does the debt settlement process work?

The goal of the process is to have creditors, such as credit card companies, forgive a substantial portion of what you owe. Some debt settlement companies have successfully reduced unsecured debts by 40 to 60 percent.

While negotiations are taking place on your behalf, the consumer is typically asked to cease making any monthly payments on their unsecured debts.

“In most cases, for debt settlement companies to effectively negotiate your debt, you will need to be delinquent or in default,” says Leslie Tayne, financial debt resolution attorney and managing director of Tayne Law Group. “They use this as leverage to negotiate for a lump-sum payment lower than the total amount of your debt. Because you haven’t been making payments, creditors would rather recoup a portion of the debt than none of it, which is the notion that debt settlement companies use to negotiate successfully.”

While negotiations are taking place, however, you will typically be asked to begin making deposits into an account and the funds accumulated in the account will be used to pay whatever settlements are ultimately agreed upon, Tayne says.

Pros and cons of debt settlement programs

Though it can be an intimidating and lengthy process, there are some benefits to pursuing debt settlement.

“One of the biggest advantages of debt settlement is that you are, in fact, reducing your total amount of debt, as opposed to other debt-relief options such as consolidation,” says Tayne. “Additionally, debt settlement is a much more favorable option than bankruptcy because bankruptcy will have longer and more severe effects on your financial health.”

There are drawbacks to this resolution, however. Chief among them is the impact debt settlement has on your credit score when you suspend making payments on credit cards or other unsecured debts.

“Your credit score will initially take a hit and that negative debt will stay on your credit report for at least five to seven years depending on what state you’re in,” says BankMobile’s Exantus. “If you’re wanting to take out credit in the near future, then going to debt settlement is not the right way to go.”

In addition, not all debt settlement companies are trustworthy, so you’ll need to do your research carefully before signing any contract.

“One of the biggest disadvantages of debt settlement is that there’s an inherent risk involved with companies that may not have your best interest in mind,” says Tayne. “You need to work with a reputable company that understands how to manage your debt at any stage of the process with your best interest in mind.”

Ultimately, there’s no guarantee creditors will agree to a settlement, and you run the risk of being sued during this process while you’re not making payments on debts.

What to look for in a debt settlement company

Selecting a reputable debt settlement company requires research and careful decision-making. You’ll want to consider several factors about each company before making any decisions.

  • Length of time in business: The key to debt settlement is its track record and how effective it is in its negotiations. “Working with a company that has been conducting its business a long time, which indicates a history of working with creditors, provides more confidence,” says Fox of Freedom Debt Relief. “A company’s experience can play an important role in achieving the best settlements for consumers.”
  • Availability of customer service representatives and up-front communication: A truly reputable debt settlement company’s customer service representatives are ready, willing and able to answer questions about the debt settlement process and all fees. Steer clear of companies that only provide vague or unclear answers. It can take two to five years to settle debts, so finding a company that’s supportive and is easy to get in touch with will make the process much less stressful.
  • History of satisfied clients: Checking customer reviews can provide valuable insight about the quality of service a company has provided others. “Make sure that the debt settlement company has a track record of actually settling debt,” says Exantus.
  • Fees: You’ll also want to find out exactly what fees a debt settlement company charges for their services. You don’t want to be locked into a contract that you can’t afford, says Exantus. It’s also a good idea to avoid companies that charge fees in advance. Reputable companies will not charge fees before doing any work for you.
  • Trained personnel: An upstanding debt settlement company should have debt consultants who are trained and certified in debt settlement, says Fox.
  • Industry accreditation: The American Fair Credit Council (AFCC) is a key debt settlement industry association. Look for a company’s association with the AFCC. “The AFCC enforces a strict code of conduct for all members,” says Fox. “Also, debt settlement companies can join only if they are in full compliance with the Federal Trade Commission regulations set for the industry.” The International Association of Professional Debt Arbitrators is another professional industry association that offers accreditation to debt settlement companies.

Alternatives to debt settlement

Working with a debt settlement company, of course, is not your only option. If you have overwhelming debt, a variety of other approaches may get your finances under control.

One of the primary alternatives is to reach out to your credit card companies or debtors directly, says Exantus.

“Most of them will have programs or ways to assist you to make your payments more affordable without negatively impacting your credit score,” says Exantus.

Additional options include filing bankruptcy, getting a debt consolidation loan and paying down your debts on your own.

“While debt consolidation loans may not reduce your debt as quickly as settlement, it simplifies your debt into one monthly payment and can give you a lower interest rate, which can save you in the long run,” says Tayne. “Borrowers with even smaller amounts of debt may benefit most from simply adjusting their budgets to manage and pay down their debt more effectively.”

The bottom line

The key point to remember when considering debt settlement is that taking such an approach to addressing financial challenges is a significant decision, one that will have long-lasting ramifications. It’s critical to weigh your decision carefully.

“No. 1, you should be speaking with a financial counselor or financial coach so that they can look at your credit report to see what the best option is,” says Exantus. “No. 2, if debt settlement is the way to go, then make sure you’re researching the company that you’re using so that you’re not paying an arm and a leg.”

Written by
Mia Taylor
Former Contributing Writer
Mia Taylor is a former contributor to Bankrate and an award-winning journalist who has two decades of experience and worked as a staff reporter or contributor for some of the nation's leading newspapers and websites including The Atlanta Journal-Constitution, the San Diego Union-Tribune, TheStreet, MSN and