Key takeaways

  • Not every debt relief company is legit. Check accreditation, reviews and fees before submitting personal financial information.
  • Fees of up to 25 percent may be charged on the debt you enroll in a debt relief program.
  • Alternatives like credit counseling and debt consolidation may be a less expensive first option.

Debt relief companies are for-profit institutions that help you manage and pay down your debts. Depending on the company and what services are offered, they may work with creditors to help you get out of debt for less than what you originally owed.

Most relief companies charge a hefty fee for their services. However, just like with loan lenders and credit card issuers, each company offers different services. Debt consolidation, debt settlement, credit counseling and debt management are the most common options.

How do debt relief companies work?

Debt relief companies exist to help consumers get out of debt faster by making their monthly payments more manageable. These services are provided in exchange for fees that range based on the type of assistance you receive. In the case of debt settlement, there are hefty closing fees — generally between 15 and 25 percent of your total debt balance enrolled.

While every company offers different processes and methods, you’ll be asked to stop making payments to your creditors in the case of debt settlement and debt management plans. You’ll then get access to a secured savings account under your name where you’ll make regular monthly deposits.

From then on out, the company will handle all of the communication between creditors. They will negotiate your debt for you and if an agreement or settlement is reached, you’ll be responsible for making the remaining payments — if there are any — into your account over a set period of time.

What do relief companies offer?

No single debt relief method will work under every circumstance. Thankfully, most companies offer a few options to suit a range of needs.

Debt consolidation

Debt consolidation involves taking two or more debts — whether they be loans, credit or both — and combining them into one account with a single, fixed monthly payment.

You can consolidate your debt on your own through researching debt consolidation loans and balance transfer cards. Or you can do so with the help of a third party like a debt relief company.

Consolidation is best for those who have a good or excellent credit score and are in good financial standing. This is because it won’t benefit your finances if the rate you’re offered is higher than your existing rates — you’ll end up paying more interest in the long run.

Credit counseling

Credit counseling is commonly offered by nonprofit organizations and agencies. It is generally free and comes with no strings attached. When you express interest in a counseling agency, you’ll have a one-on-one consultation with a specialist who will take a look at your financial portfolio and come up with a relief plan with you.

A counselor may suggest working with a relief company to settle or negotiate your debts, enrolling in a debt management plan (DMP) or may help you come up with a plan to manage your debts on your own based on your income.

Debt management plans

A debt management plan (DMP) is a plan that lasts two to five years and is designed to help you better manage your debt and pay it off sooner. On a DMP, you’ll be partnered with a credit counselor who will negotiate with your creditors to try and lower your total debt owed.

However, creditors aren’t legally obligated to work with a credit counselor and don’t have to accept the offer. If your creditors do agree to work with your DMP, then you’ll make a regular monthly payment to your counselor, who will then divide it amongst all of your creditors.

Keep in mind that you likely won’t be able to apply for new lines of credit until your debts are paid off and your DMP is complete.

Debt settlement

When you opt for debt settlement with a debt relief company, you’ll partner with a representative who will work directly with your creditors to negotiate the amount of debt you owe and to establish a repayment plan.

If the creditor agrees to work with you and the relief company, you’ll be required to stop making payments to your creditors and deposit a regular amount over a set period of time into a secured savings account. The company will then distribute the money directly to the creditor.

During the process, your representative will keep you informed and up-to-date with the progress of your debt negotiation. That being said, you should always be required to sign off on each settlement so you know exactly what you’re paying off and how much remaining debt you have.

After your balance is settled, you’ll be charged a fee between 15 percent and 25 percent of the debt you’re settling. What’s more, late fees and interest will accrue while the company negotiates your debt. While you won’t be on the hook for these fees — if the settlement is successful — it will severely damage your credit score and remain on your credit report for up to seven years.

Risks to be aware of before working with a debt relief company

Companies that provide debt assistance or relief exist primarily as a last resort option before declaring bankruptcy. While having someone negotiate your debts for you can sound enticing, there are some definite drawbacks to be aware of.

For the most part, debt relief will result in lasting negative impacts on your credit. In the case of settlement, your credit score could drop as much as 100 points. Even working with a relief company will remain on your credit report for up to seven years.

However, many consumers will turn to relief methods rather than bankruptcy because it may have less severe impact to credit — bankruptcy remains on your report for up to 10 years. Plus, bankruptcy can be a lengthy process to navigate and qualifying is often more difficult than qualifying for debt relief.

What to look for in a debt relief company

Certification, fees and the repayment time are the three main factors to prioritize when comparing settlement companies to increase your chances of becoming debt free.

  1. Certification: It should be backed by the National Foundation for Credit Counseling and the Financial Counseling Association of America. If the company lacks these certifications, you’ll want to take your business elsewhere.
  2. Fees charged: Most debt relief companies will charge a fee between 15 percent and 25 percent of the total debt enrolled for settlement. Companies may also charge fees for opening and managing the savings account required to make payments.
  3. Repayment timeline: It typically takes between two to four years to complete a debt settlement. However, this is based on the total amount of debt and creditors you have. Check the website to make sure the predicted timeline matches your needs.

How to tell if a debt relief company is legit

Unfortunately there are many debt relief scams out there that could end up costing you thousands of dollars. If you run into any of the following, you’re likely dealing with an illegitimate company.

  • Calls with threatening messages: If you’re receiving multiple calls or company threatening jail time or legal ramifications, it’s a safe bet that it’s illegitimate, especially if it’s a robo-call or a prerecorded message.
  • Upfront charges and fees: Legitimate relief companies only charge fees once the debts are settled. If you’re asked to provide money upfront, it’s a telltale sign that you could be getting involved in a scam.
  • No application or consultation process: Legitimate settlement companies will require an application or consultation session prior to negotiations. If you’re offered relief right off the bat, don’t give the company your business.
  • Guarantees: If you’re guaranteed a successful debt settlement or forgiveness, the claims are more than likely false. Creditors aren’t required to work with relief companies, so a guarantee of relief isn’t technically possible.

Pros and cons of working with a relief company

Depending on your financial situation, how much delinquent debt you have and how many creditors you’re working with, the drawbacks may very well outweigh the advantages of working with a relief company.

However, for some, relief methods can be a faster way to become debt free for less than what was already owed. Before making a decision, weigh the following pros and cons to determine if working with a company is the best decision for you.


  • You’ll avoid bankruptcy, which can stay on your credit report for longer.
  • You may pay less overall than you owed when you enrolled.
  • Potentially faster way to repay your debt.


  • Fees charged by a company can eat into the value of working with it.
  • Negative ramifications to your credit score.
  • In certain cases, you’re responsible for reporting any reduced debt as taxable income.

How to find the best debt relief company

There isn’t one singular relief company that can earn the title of best. But there are companies — and debt relief options — that are better tailored to your needs than others.

Before applying, make sure you meet the minimum debt requirements and that you have an understanding of what’s provided by the company. It’s also good practice to check the company reviews, success rate and fees to see how they fare when compared to other companies and relief agencies.

Once you’ve narrowed down your top few choices, look at the terms and conditions to scope out any additional fees. Whichever institution has the highest likelihood of success, lowest fees for your credit situation and best customer service is likely the best company for you. If the consultations are free, meet with at least two companies to see which will be the most helpful to your repayment journey.

Alternatives to working with a debt relief company

While a debt relief company can be helpful in some circumstances, there is nothing stopping you from seeking a more affordable alternative.

  • Negotiate on your own: If you have the time and energy, you can do the negotiation yourself. It can be worth it when you want to avoid the steep fees charged by a debt relief company.
  • Debt consolidation: Consolidating your debt — either through a loan or balance transfer credit card — may help you pay less. However, you need to ensure you are paying a lower average rate.
  • Credit counseling: Because credit counseling is offered by nonprofits, there is often no cost to you. It can be a good first step to reorganizing your finances and getting your debts under control.

Keep in mind that debt consolidation and credit counseling won’t reduce the total amount you owe. Only negotiating with your creditors can do that. And in some circumstances, you may find the creditor is unwilling to lower your debt — meaning you need to pay the full amount no matter what your finances look like.

Frequently asked questions about debt settlement companies

  • Debt relief will not permanently damage your credit, but it will severely knock down your score — up to 100 points. After settling your debts, your score will slowly improve as you make on-time payments, although relief will remain on your report for up to seven years.
  • Consumers who have large amounts of eligible — typically unsecured — unpayable debt are generally accepted by settlement companies should they meet the minimum debt requirements.
  • Settling your debt can be both a good and bad thing for your finances. For one, it often comes with high fees and negative credit implications. There’s also a chance that the creditor won’t work with the company. However, for some it could be a better alternative to bankruptcy.