What Is Debt Consolidation and What Are Your Options? A damaged credit score wipes out any chance of getting a bank loan. Here are some things you should do before you choose a company: Reputable debt settlement companies don’t charge you anything upfront. They’re also all accredited members of the American Fair Credit Council, a trade organization for the debt settlement industry that applies its own set of standards and practices to the accreditation process. Debt Settlement Companies.

Another form of payday loan consolidation is using a credit card to get a cash advance that would be used to retire the payday loan. Our Two Cents — ZipDebt has a solid track record of helping people settle their debts. The company only charges you 18% of the total amount it saves you. The company charges low fees — you’ll pay just 10% to 15% of the total amount saved.

The company also doesn’t handle certain types of niche debt like medical bills and credit union debt.

Debt settlement is a common choice for those whose finances have soured over time, leading to debt they simply can’t repay. Before you sign up, make sure you understand exactly how much you’ll be charged.

In many cases, the debt settlement company will be unable to settle all of your debts.

She recently made a career switch from the legal field, where she was an attorney in Washington, DC.

What's the difference between a credit counselor and a debt settlement or debt relief company?

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The company is experienced in negotiating private debts like personal loans, medical debt, credit card debt and certain student loans.

Debt settlement companies also charge a fee for their "service."

The idea, of course, is to set up a dichotomy to entice companies to agree to partial payment as opposed to nothing at all.

But to qualify, you’ll need significant financial resources. Another way to prevent getting this page in the future is to use Privacy Pass.

This information may include links or references to third-party resources or content. Cloudflare Ray ID: 5db41fbf8af7d6c5 If you stop paying your creditors, you could rack up costly late fees and damage your credit.

Freedom Debt Relief is experienced at settling private debts but has had some recent lawsuits due to its lack of transparency. Taking some time to research your options and choose the right company will make your debt settlement process go more smoothly. While a debt settlement could save dollars going to creditors, who could create a debt when it comes to tax time. But the company has had a few lawsuits about its lack of fee transparency, which is something to consider. You can also view the Federal Trade Commission's page on "Coping with Debt " for more information.


Its debt relief program lasts an average of four months and saves customers around 55%. Efforts to reach a debt settlement could fail if a creditor refuses to enter into an agreement. Debt settlement companies negotiate with creditors on your behalf to resolve your debts for less than what you owe. In exchange, the creditor or collector discharges whatever is left. Creating leverage in negotiations with creditors often means skipping payments. The whole process usually takes two to four years. She specializes in taking personal finance topics like loans, credit cards, and budgeting, and making them accessible and somewhat fun. Think about it this way: If you owe $50,000, your settlement fees would range from $7,500–10,000.
With these offers, a transfer fee of around 2% to 3% applies. Please do not share any personally identifiable information (PII), including, but not limited to: your name, address, phone number, email address, Social Security number, account information, or any other information of a sensitive nature.

CuraDebt has an A+ rating from the BBB and earns five stars from customers. If a portion of your debt is forgiven by the creditor, it could be counted as taxable income on your federal income taxes. Debt Relief A La Carte is also a small company, so it’s only able to take on a limited number of clients. Clear One Advantage. Consider all of your options, including working with a nonprofit credit counselor, and negotiating directly with the creditor or debt collector yourself .

If you have a lot of unsecured debt you can’t pay back because of financial hardship due to an event like losing your job or becoming ill, then debt settlement may be a good option for you.

Unless the debt settlement company settles all or most of your debts, the built up penalties and fees on the unsettled debts may wipe out any savings the debt settlement company achieves on the debts it settles.

Debt settlement may help you avoid bankruptcy, which causes your credit score to plummet and shows up on your credit report for up to 10 years. Using debt settlement services can have a negative impact on your, Charges any fees before it settles your debts, Represents that it can settle all of you debt for a promised percentage reduction, Touts a "new government program" to bail out personal credit card debt, Tells you to stop communicating with your creditors, Tells you it can stop all debt collection calls and lawsuits, Guarantees that your unsecured debts can be paid off for pennies on the dollar. But because debt settlement can damage your credit score and stay on your credit report for up to seven years, it’s important to treat it as a last resort.

Your IP: 185.170.112.28 Jessica Walrack is a personal finance writer at SuperMoney, Interest.com, The Simple Dollar, and PersonalLoans.org. ZipDebt was founded by Charles J. Phelan, a debt settlement expert, in 2004.

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Under IRS rules, debt that’s been forgiven counts as income. That sounds like a debt consolidation loan, but there’s a big difference. Most debt settlement companies will ask you to stop paying your debts in order to get creditors to negotiate and to collect the funds required for a settlement. You could even be sued if you stop making minimum payments. Instead of charging a percentage of your debt, some companies base their fees on how much money they saved you.

Our Two Cents — Debt Relief A La Carte has low fees and an impressive average savings amount.

This can cause your original debt to increase. Debt settlement companies are companies that say they can renegotiate, settle, or in some way change the terms of a person's debt to a creditor or debt collector.

[Read: Six Effortless Ways to Make a Bigger Dent in Your Debt]. But if they reach an agreement with your creditors, they’ll usually charge you between 10% and 25% of the amount of debt you owed when you enrolled. Most customers complete the program in less than 48 months, so you’ll be able to clear your debts relatively quickly. If you stop paying your bills, you will usually incur late fees, penalty interest and other charges, and creditors will likely step up their collection efforts against you. One way to resolve your credit card debt or other debt is to enlist the help of a debt settlement company. Are all debt settlement services legitimate? Typically, you’ll stop making minimum payments for a few months or years so you can start setting aside money for the lump sum payment. Warning: There could be tax consequences for debt forgiveness. Debt settlement agreements include forgiveness of the unpaid balance once the negotiated sum is paid in full.

And there’s no guarantee a debt settlement will be reached. There may be other resources that also serve your needs. Debt Relief A La Carte was founded by a former debt collector in 2002 to help people settle their debts fast. If you do business with a debt settlement company, the company may tell you to put money in a dedicated bank account, which will be managed by a third party. Reputable nonprofit credit counseling services offer help in creating a plan for better money management through budgeting and debt payment. The average CuraDebt customer saves around 30% after fees.

If the idea of DIY debt settlement is appealing but you still want expert guidance, check out ZipDebt, reviewed above.

But its services are only available in 25 states, which is a major drawback.

An official website of the United States government. Contact us at inquiries@thesimpledollar.com with comments or questions. A debt management plan eases debt burden through negotiated lower interest rates and payments with creditors. Debt settlement companies typically encourage you to stop paying your credit card bills. “Debt settlement, on average, saves consumers $2.64 for every $1 in fees paid,” boasts the AFCC-commissioned Regan Report. Completing the CAPTCHA proves you are a human and gives you temporary access to the web property.

CuraDebt has a minimum debt requirement of just $5,000, so it’s a good option if you have a few small debts you need to settle. Donaldson Williams has a high savings rate and lower than average fees — it only charges you 18% of the amount it saves you. New Era Debt Solutions was founded in 1999 and has settled more than $250 million in debt for its customers.

CuraDebt is one of the few debt settlement companies that will work with customers who have just $5,000 in unsecured debt. While credit card companies usually extend introductory offers to those with credit scores above 700, transferring debt with low interest is a great move for those who qualify.

Our Two Cents — New Era Debt Solutions has no minimum debt requirements, low fees and a solid average debt reduction of 47.77%. Donaldson Williams is worth considering because it has some of the lowest fees in the debt relief industry.

When successful, debt settlement causes less damage to your credit score and takes less time to recover from because it drops off your credit report in seven years. Now ZipDebt only offers a full-service debt settlement program.