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Debt Settlement Review

October 9, 2014

When debt settlement comes to mind, it often comes with negative connotations of corrupt intentions and empty promises from an industry with little in the way of governing rules and moral ethics. While there are still companies finding loopholes and workarounds to continue deceitful practices, much progress has been made in the last few years to legitimize the industry and keep the companies that are truly trying to help their customers. It is still a risk and a gamble because nothing may come from years of negotiation, but if it is your very last option before declaring bankruptcy, you should have all of the facts before you choose a debt settlement program.

Debt negotiation is something you can do for yourself. In fact, if you have less than $7,500 in debt, many services recommend you try negotiating your debt with your creditors before pursuing a settlement program. What debt settlement companies offer is experience, training and knowledge of the business. Our lineup includes the best debt settlement companies, particularly our top three, National Debt Relief. Freedom Debt Relief and New Era Debt Solutions .

We would like to caution you about a few things you might not hear from your debt settlement company. It is extremely important to remember that, even if your settlement company asks you to stop paying your creditors, you are still responsible for your debt and all fees, interest and penalties associated with that debt. Negotiations do not change anything between you and your creditors, who are under no obligation to reduce your debt in any way. Also, debt settlement will negatively affect your credit, and a settlement stays on your credit report for seven to ten years.

In 2010, the FTC passed a law that places very specific regulations on debt settlement companies, and one of the most important is that no company can charge upfront settlement fees. This is a direct reaction to companies that in the past charged advanced fees for settlements with no intention of attempting negotiations. Today, some services charge monthly maintenance fees, but most only charge performance-based fees. This means that if a company does not reduce your debt, you pay nothing. To learn more about debt settlement and the laws passed by the FTC, have a look at our articles on debt settlement .

When we become aware of companies that attempt to bend the rules or completely break laws, we remove them from our lineup. At the end of August 2014, the Consumer Financial Protection Bureau (CFPB) announced an enforcement action against one of the largest trust fund companies used by debt settlement companies Global Client Solutions for helping companies illegally charge upfront fees since 2010. While not every debt settlement company that uses Global Client Solutions participated in the illegal actions, we will keep an eye on this as it develops to ensure none of our top ten services are named in the case.

Debt Settlement Services: What to Look For

The following criteria is what we consider the most important to know before selecting a company and settlement program. Programs can take years to complete, so you want to know everything you can about a company, its history and its practices because you could be working with it for a fair amount of time.

Cost Reduction

As mentioned above, no company can legally charge settlement fees before it actually negotiates a settlement with one of your creditors. However, some services charge monthly fees. While these are not illegal fees, you can easily find a company that does not charge anything upfront. The fees and the percentage that the company is able to negotiate varies from creditor to creditor and situation to situation. With reduction, a higher percentage is better; 30% is common and 50% is excellent. Concerning the settlement fees, lower is better; 20% is average and anything in the teens is preferable, but there is another element to consider concerning fees.

Companies charge their settlement fees based on one of two figures. The most common is a percentage of the total enrolled debt. For example, if you have $10,000 in debt and the company charges 20% of the enrolled amount, your fees will be around $2,000 no matter the settlement. If it negotiates a 50% reduction, 20% goes to the settlement company and you essentially benefit from a 30% reduction, which means you pay around $7,000 of the original $10,000. If it negotiates a 40% reduction, 20% still goes to the settlement company, so you end up paying the $6,000 back to the companies you owe and the settlement company still gets $2,000 for a total of $8,000.

*The better alternative albeit less common is a percentage of the settled amount. The more this company saves you, the more money it makes, but it is still cheaper for you. If a settlement company reduces your $10,000 debt by 40%, as in the above example, you would still pay $6,000 to the companies you owe. However, with this payment option, you would only pay 20% of $4,000, or $800, to the settlement company, because that is all they saved you. So instead of paying $8,000, you only pay $6,800.

Service Features

The time frame for a settlement program ranges on average from a year up to four years. As touched upon above, you put money into a trust account each month so that funds are available when settlements occur. All trust account affiliates must be insured through the FDIC, cannot be directly related to the settlement company and cannot offer referral benefits to debt settlement companies. Also, the funds and any interest accrued on them are yours, not the settlement company’s. You may remove them at any time without penalty. However, this may affect your contract and settlement program.

Some companies advertise settlements in under a year, but the figures often do not seem possible. For example, if a company says it can settle 50% of your $10,000 debt in six months, you must be able to save over $800 a month before fees in order to pay off the settlements. Two to four years may seem like a long time, but depending on your financial situation, it may be the most reasonable answer.

For this section, we also considered the website in terms of information volunteered and if there is an online portal. We also looked at whether or not your account has a dedicated arbitrator or advisor.


Accreditations can be tricky because they are mostly industry related rather than government sanctioned. The International Association of Professional Debt Arbitrators (IAPDA) offers training and certification for professional debt negotiation to promote ethical standards within the debt relief industry. The American Fair Credit Council (AFCC) previously the TASC formed in 2011 with the intent to regulate the settlement industry and ensure compliance with FTC laws and initiatives.

Help Support

Many companies offer a personal advisor or arbitrator for your account, which will likely be your best resource if you have questions. However, we also considered the normal help and support options, including telephone, email and live chat to reach customer service, an online FAQs page and privacy policy, and self-help resources.

The debt settlement industry has come a long way in the last few years, but you want to make sure you have all the facts before choosing a company. You want to ensure you can commit to a settlement program because a large percentage of consumers drop out of programs and remain buried by debt. It’s in your best interest to find a reputable company with the lowest fees and best success rate.

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