Debt Settlement Pros and Cons

Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as “Credible.”

Debt settlement is when you negotiate with a creditor to settle your debt, often for less than what you owe. If the creditor accepts the settlement, you’ll typically have to make a lump-sum payment to resolve the debt.

In some situations, settlement could be a helpful option to take control of your debt — such as if you are behind on payments or have a high balance that will be difficult to repay. However, there are other payoff strategies that might better suit your needs. In any case, it’s important to weigh the pros and cons of debt settlement so you can make the right choice for your situation.

Here are debt settlement pros and cons to keep in mind (along with other options to consider):

Debt settlement pros and cons

While debt settlement can be a good choice in some cases, it isn’t right for everyone. Here are some pros and cons to consider while weighing your options:

Pros Cons
Might be able to settle for less than what you owe Creditors might not be willing to negotiate
Pay off debt sooner Could come with fees
Stop calls from collection agencies Could hurt your credit
Could help you avoid bankruptcy Debt written off might be taxable

Benefits

  • Might be able to settle for less than what you owe: A creditor could agree to a settlement that’s less than what you owe. They might also be willing to waive fees or interest charges.
  • Pay off debt sooner: Settling a debt lets you pay off your balance all at once rather than spending months or years making payments — meaning you can quickly lessen the strain on your budget.
  • Stop calls from collection agencies: If you successfully settle a debt, the calls from collection agencies should stop. Just keep in mind that it could take several months for the paperwork to be resolved before the calls will cease.
  • Could help you avoid bankruptcy: Filing for bankruptcy can help borrowers who are overwhelmed by debt take control of the situation — however, bankruptcy will severely damage your credit, so it should be a last resort. Negotiating a settlement might provide you with the financial breathing room you need to avoid bankruptcy. It should also keep your creditors from suing you in an attempt to recoup their losses.

Disadvantages

  • Creditors might not be willing to negotiate: There’s no guarantee that a creditor will accept a settlement offer.
  • Could come with fees: For-profit debt settlement companies typically charge fees for their services — usually 20% to 25% of the final settlement amount.
  • Could hurt your credit: Resolving a debt for less than what you actually owe could have a negative impact on your credit. Additionally, many debt settlement companies will encourage you to stop making payments while they attempt to negotiate with your creditor, which will further damage your credit.
  • Debt written off might be taxable: If a creditor agrees to settle, the difference between what you owe and what you pay might be taxed as income.

Learn More: Credit Card Consolidation Loans

Debt settlement alternatives

Debt settlement can be a valuable option for taking control of debt — however, it also comes with several risks that aren’t always worth it for every situation.

The good news is that there are several other strategies that could help you pay off your debt more easily. If debt settlement doesn’t seem right for you, here are some alternatives to consider:

Strategies for paying off debt

Strategies for paying off debt

Get a balance transfer credit card

With a balance transfer credit card, you can move a credit card balance from one card to another. Some balance transfer cards come with a 0% APR introductory offer, which means you could avoid interest charges if you pay off your card before this period ends.

Keep in mind: If you can’t repay your balance before a 0% APR period ends, you could get stuck with some hefty interest charges. Also note that you’ll likely have to pay a fee to transfer your balance — typically 3% to 5% of the amount you want to transfer.

Apply for a debt consolidation loan

A debt consolidation loan is a type of personal loan that you can use to pay off debts. This will leave you with just one loan and payment to manage.

Tip: Depending on your credit, you might get a lower interest rate on a personal loan than what you’re currently paying, which could save you money on interest and potentially help you pay off your loan faster.

Or you might opt to extend your repayment term to reduce your monthly payments and lessen the strain on your budget. Just keep in mind that you’ll pay more interest over time with a longer term.

If you decide to take out a personal loan to consolidate debt, be sure to consider as many lenders as possible to find the right loan for your situation. Credible makes this easy — you can compare your prequalified rates from our partner lenders in the table below in two minutes.

Lender Fixed rates Loan amounts Min. credit score Loan terms (years)

Credible Rating

Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.

9.95% – 35.99% APR $2,000 to $35,000** 550 2, 3, 4, 5*
  • Fixed APR: 9.95% – 35.99% APR
  • Variable APR: N/A
  • Min. credit score: 550
  • Loan amount: $2,000 to $35,000**
  • Loan terms (years): 2, 3, 4, 5*
  • Time to fund: As soon as the next business day (if approved by 4:30 p.m. CT on a weekday)
  • Fees: Origination fee
  • Discounts: Autopay
  • Eligibility: Available in all states except CO, IA, HI, VT, NV NY, WV
  • Customer service: Phone, email
  • Soft credit check: Yes
  • Loan servicer: Avant
  • Loan Uses: Debt consolidation, emergency expense, life event, home improvement, and other purposes
  • Min. Income: $1,200 monthly

Credible Rating

Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.

6.79% – 17.99% APR $10,000 to $50,000 700 3, 4, 5, 6
  • Fixed APR: 6.79% – 17.99% APR
  • Variable APR: N/A
  • Min. credit score: 700
  • Loan amount: $10,000 to $50,000
  • Loan terms (years): 3 to 6
  • Time to fund: Next business day
  • Fees: No prepayment penalty
  • Discounts: None
  • Eligibility: Available in all 50 states
  • Customer service: Phone
  • Soft credit check: Yes
  • Min. Income: Does not disclose
  • Loan Uses: Debt consolidation, home improvement, self-employment, and other purposes

Credible Rating

Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.

4.99% – 35.99% APR $2,000 to $50,000 600 2, 3, 4, 5
  • Fixed APR: 4.99% – 35.99% APR
  • Variable APR: N/A
  • Min. credit score: 600
  • Loan amount: $2,000 to $50,000
  • Loan terms (years): 2, 3, 4, 5
  • Time to fund: As soon as 1 – 3 business days after successful verification
  • Fees: Origination fee
  • Discounts: None
  • Eligibility: Available in all states except DC, IA, VT, and WV
  • Customer service: Phone
  • Soft credit check: Yes
  • Loan servicer: Best Egg and Blue Ridge Bank
  • Min. Income: None
  • Loan Uses: Credit card refinancing, debt consolidation, home improvement, and other purposes

Credible Rating

Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.

5.99% – 24.99% APR $2,500 to $35,000 660 3, 4, 5, 6, 7
  • Fixed APR: 5.99% – 24.99% APR
  • Min. credit score: 660
  • Loan amount: $2,500 to $35,000
  • Loan terms (years): 3, 4, 5, 6, 7
  • Time to fund: As soon as the next business day after acceptance
  • Fees: Late fee
  • Discounts: None
  • Eligibility:  Available in all 50 states
  • Customer service: Phone
  • Soft credit check: Yes
  • Loan Uses: Auto repair, credit card refinancing, debt consolidation, home remodel or repair, major purchase, medical expenses, taxes, vacation, and wedding

Credible Rating

Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.

7.99% – 29.99% APR $10,000 to $50,000 Not disclosed by lender 2, 3, 4, 5
  • Fixed APR: 7.99% – 29.99% APR
  • Min. credit score: Does not disclose
  • Loan amount: $10,000 to $50,000
  • Loan terms (years): 2, 3, 4, 5
  • Time to fund: As soon as 2 business days
  • Fees: Origination fee
  • Discounts: No
  • Eligibility: Available in all states except CO, CT, HI, KS, NH, NY, ND, OR, VT, WV, WI, and WY
  • Customer service: Phone
  • Soft credit check: Yes
  • Min. Income: None
  • Loan Uses: Debt consolidation, home improvement, wedding, travel, medical expenses, and other purposes

Credible Rating

Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.

7.04% – 35.89% APR $1,000 to $40,000 600 3, 5
  • Fixed APR: 7.04% – 35.89% APR
  • Min. credit score: 600
  • Loan amount: $1,000 to $40,000
  • Loan terms (years): 3, 5
  • Time to fund: Usually takes about 2 days
  • Fees: Origination fee
  • Discounts: None
  • Eligibility: Available in all 50 states
  • Customer service: Phone, email
  • Soft credit check: Yes
  • Loan servicer: LendingClub Bank
  • Min. Income: None
  • Loan Uses: Debt consolidation, paying off credit cards, home improvement, pool loans, vacations, and other purposes

Credible Rating

Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.

9.99% – 35.99% APR $2,000 to $36,500 580 2, 3, 4
  • Fixed APR: 9.99% – 35.99% APR
  • Min. credit score: 580
  • Loan amount: $2,000 to $36,500
  • Loan terms (years): 2, 3, 4
  • Time to fund: As soon as the next business day
  • Fees: Origination fee
  • Discounts: Autopay
  • Eligibility: Available in all states except NV and WV
  • Customer service: Phone, email
  • Soft credit check: Yes
  • Min. Income: $20,000
  • Loan Uses: Home improvement, consolidate debt, credit card refinancing, relocate, make a large purchase, and other purposes

Credible Rating

Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.

2.49% – 19.99% APR $5,000 to $100,000 660 2, 3, 4, 5, 6, 7
(up to 12 years for home improvement loans)
  • Fixed APR: 2.49% – 19.99% APR
  • Min. credit score: 660
  • Loan amount: $5,000 to $100,000
  • Loan terms (years): 2, 3, 4, 5, 6, 7*
  • Time to fund: As soon as the same business day
  • Fees: None
  • Discounts: Autopay
  • Eligibility: Available in all states except RI and VT
  • Customer service: Phone, email
  • Soft credit check: No
  • Loan servicer: LightStream
  • Min. Income: Does not disclose
  • Loan Uses: Credit card refinancing, debt consolidation, home improvement, and other purposes

Credible Rating

Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.

6.99% – 19.99% APR1 $3,500 to $40,0002 660
(TransUnion FICO®️ Score 9)
3, 4, 5, 6, 7
  • Fixed APR: 6.99% – 19.99% APR1
  • Min. credit score: 660
    (TransUnion FICO®️ Score 9)
  • Loan amount: $3,500 to $40,0002
  • Loan terms (years): 3, 4, 5, 6
  • Time to fund: Many Marcus customers receive funds in as little as three days
  • Fees: None
  • Discounts: Autopay
  • Eligibility: Available in all 50 states
  • Customer service: Phone
  • Soft credit check: Yes
  • Loan servicer: Goldman Sachs
  • Min. Income: $30,000
  • Loan Uses: Credit card refinancing, debt consolidation, home improvement, major purchase, and other purposes

Credible Rating

Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.

18.0% – 35.99% APR $1,500 to $20,000 None 2, 3, 4, 5
  • Fixed APR: 18.0% – 35.99% APR
  • Min. credit score: None
  • Loan amount: $1,500 to $20,000
  • Loan terms (years): 2, 3, 4, 5
  • Time to fund: As soon as the same day, but usually requires a visit to a branch office
  • Fees: Origination fee
  • Discounts: None
  • Eligibility: Must have photo I.D. issued by U.S. federal, state or local government
  • Customer service: Phone, email
  • Soft credit check: Yes
  • Min. Income: Does not disclose

Credible Rating

Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.

5.99% – 24.99% APR $5,000 to $40,000 600 2, 3, 4, 5
  • Fixed APR: 5.99% – 24.99% APR
  • Min. credit score: 600
  • Loan amount: $5,000 to $40,000
  • Loan terms (years): 2, 3, 4, 5
  • Time to fund: As soon as 2 – 5 business days after verification
  • Fees: Origination fee
  • Discounts: None
  • Eligibility: Available in all states except MA, NV, and OH
  • Customer service: Phone, email, chat
  • Soft credit check: Yes
  • Min. Income: None
  • Loan Uses: Debt consolidation and credit card consolidation only

Credible Rating

Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.

4.99% – 17.99% APR $600 to $50,000
(depending on loan term)
660 1, 2, 3, 4, 5
  • Fixed APR: 4.99% – 17.99% APR
  • Min. credit score: 660
  • Loan amount: $600 to $50,000*
  • Loan terms (years): 1, 2, 3, 4, 5
  • Time to fund: 2 to 4 business days after verification
  • Fees: None
  • Discounts: None
  • Eligibility: Does not disclose
  • Customer service: Phone, email
  • Soft credit check: No
  • Min. Income: Does not disclose
  • Loan Uses: Debt consolidation, home improvement, transportation, medical, dental, life events

Credible Rating

Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.

6.95% – 35.99% APR $2,000 to $40,000 640 3, 5
  • Fixed APR: 6.95% – 35.99% APR
  • Min. credit score: 640
  • Loan amount: $2,000 to $40,000
  • Loan terms (years): 3, 5
  • Time to fund: As soon as one business day
  • Fees: Origination fee
  • Discounts: None
  • Eligibility: Available in all states except IA, ND, WV
  • Customer service: Phone, email
  • Soft credit check: Yes
  • Min. Income: None
  • Loan Uses: Debt consolidation, home improvement, vehicles, small business, new baby expenses, and other purposes

Credible Rating

Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.

5.74% – 20.28% APR10 $5,000 to $100,000 Does not disclose 2, 3, 4, 5, 6, 7
  • Fixed APR: 5.74% – 20.28% APR10
  • Min. credit score: Does not disclose
  • Loan amount: $5,000 to $100,000
  • Loan terms (years): 2, 3, 4, 5, 6, 7
  • Time to fund: 3 business days
  • Fees: None
  • Discounts: Autopay
  • Eligibility: Available in all states except MS
  • Customer service: Phone, email
  • Soft credit check: Yes
  • Min. Income: Does not disclose
  • Loan Uses: Solely for personal, family, or household uses

Credible Rating

Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.

8.93% – 35.93% APR7 $1,000 to $50,000 560 3 to 5 years 8
  • Fixed APR: 8.93% – 35.93% APR7
  • Min. credit score: 560
  • Loan amount: $1,000 to $50,000
  • Loan terms: 3 to 5 years 8
  • Time to fund: Within one day, once approved9
  • Loan types: Debt consolidation, pay off credit cards, home improvements, unexpected expenses, home and auto repairs, weddings, and other major purchases
  • Fees: Origination fee
  • Discounts: Autopay
  • Eligibility: A U.S. citizen or permanent resident; not available in DC, SC, WV
  • Customer service: Phone, email
  • Soft credit check: Yes

Credible Rating

Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.

5.94% – 35.97% APR $1,000 to $50,000 560 2, 3, 5, 6
  • Fixed APR: 5.94% – 35.97% APR
  • Min. credit score: 560
  • Loan amount: $1,000 to $50,000*
  • Loan terms (years): 2, 3, 5, 6
  • Time to fund: Within a day of clearing necessary verifications
  • Fees: Origination fee
  • Discounts: Autopay
  • Eligibility: Available in all states except West Virginia
  • Customer service: Email
  • Soft credit check: Yes
  • Min. Income: Does not disclose
  • Loan Uses: Debt consolidation, credit card refinancing, home improvement, and other purposes

Credible Rating

Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.

4.37% – 35.99% APR4 $1,000 to $50,0005 580 3 to 5 years4
  • Fixed APR: 4.37% – 35.99% APR4
  • Min. credit score: 580
  • Loan amount: $1,000 to $50,0005
  • Loan terms (years): 3 to 5 years4
  • Time to fund: As fast as 1 business day6
  • Fees: Origination fee
  • Discounts: None
  • Eligibility: Available in all 50 states
  • Customer service: Phone, email
  • Soft credit check: Yes
  • Min. Income: $12,000
  • Loan Uses: Payoff credit cards, consolidate debt, take a course or bootcamp, relocate, make a large purchase, and other purposes
Compare rates from these lenders without affecting your credit score. 100% free!Compare Now
All APRs reflect autopay and loyalty discounts where available | LightStream disclosure | 10SoFi Disclosures | Read more about Rates and Terms

Use the debt snowball method

In some cases, you might need to simply repay your debts as quickly as possible. One payoff strategy to consider is the debt snowball method. With this method, you’ll focus on paying off your smallest debt first.

Here’s how it works:

Tip: The debt snowball method can be a helpful strategy if you’re motivated by small wins.

However, if you would prefer to save money on interest and don’t mind waiting to see results, you might consider the debt avalanche method instead.

Use the debt avalanche method

Another payoff strategy to think about is the debt avalanche method. With this method, you’ll focus on paying off your debt with the highest interest rate first.

Here’s how it works:

debt avalanche method

debt avalanche method

Tip: The debt avalanche method can help you save money on interest — but it can also take a while to see any movement on your loan balances.

If you’re motivated by small wins, the debt snowball method might be a better fit.

Consider a debt relief program

In addition to debt settlement, there are also other debt relief programs that might help you take control of your debt. One option to consider is a debt management plan, which is offered by many nonprofit credit counseling organizations — such as the National Foundation for Credit Counseling.

If you sign up for a debt management plan, your credit counselor will help set up a voluntary agreement between you and your creditors. You’ll then make monthly payments to the counseling agency, which will disburse the funds directly to your creditors. It typically takes three to five years to successfully complete a debt management plan.

Tip: Your creditors might be willing to reduce or waive fees or finance charges in return for you participating in a debt management plan.

Additionally, making on-time payments throughout the plan could help you begin to re-establish a positive payment history and rebuild your credit.

Check Out: How to Pay Off Credit Card Debt Fast

Debt settlement next steps

If pursuing a debt settlement seems like the right option for you, here are some tips to keep in mind:

  • Consider how much you can pay. Settling a debt typically requires making a lump-sum payment. Before starting any negotiations, run through your budget to see how much you can reasonably afford to pay.
  • Decide if you want to work with a debt settlement company. You can negotiate with a creditor on your own — however, this can be quite intimidating. Just keep in mind that working with a for-profit debt settlement company will likely come with fees — usually 20% to 25% of the settlement amount. Additionally, these companies often ask borrowers to stop making payments while attempting to negotiate, which could damage your credit.
  • Watch out for debt settlement scams. Unfortunately, there are plenty of scammers looking to take advantage of people who are trying to settle their debt. If you decide to work with a debt settlement company, make sure to do your research and verify that the company is trustworthy, such as by checking for customer reviews through the Better Business Bureau and Consumer Financial Protection Bureau.
  • Consult with a tax professional. If you’re able to settle your debt for less than what you owed, consider speaking with a tax advisor to see how that settlement will affect your taxes owed for the year. This can help you avoid any unpleasant tax surprises.

Keep Reading: Best Personal Loan Companies


About Rates and Terms: Rates for personal loans provided by lenders on the Credible platform range between 4.99-35.99% APR with terms from 12 to 84 months. Rates presented include lender discounts for enrolling in autopay and loyalty programs, where applicable. Actual rates may be different from the rates advertised and/or shown and will be based on the lender’s eligibility criteria, which include factors such as credit score, loan amount, loan term, credit usage and history, and vary based on loan purpose. The lowest rates available typically require excellent credit, and for some lenders, may be reserved for specific loan purposes and/or shorter loan terms. The origination fee charged by the lenders on our platform ranges from 0% to 8%. Each lender has their own qualification criteria with respect to their autopay and loyalty discounts (e.g., some lenders require the borrower to elect autopay prior to loan funding in order to qualify for the autopay discount). All rates are determined by the lender and must be agreed upon between the borrower and the borrower’s chosen lender. For a loan of $10,000 with a three year repayment period, an interest rate of 7.99%, a $350 origination fee and an APR of 11.51%, the borrower will receive $9,650 at the time of loan funding and will make 36 monthly payments of $313.32. Assuming all on-time payments, and full performance of all terms and conditions of the loan contract and any discount programs enrolled in included in the APR/interest rate throughout the life of the loan, the borrower will pay a total of $11,279.43. As of March 12, 2019, none of the lenders on our platform require a down payment nor do they charge any prepayment penalties.

About the author

Taylor Medine

Taylor Medine

Taylor Medine is a Credible authority on personal finance. Her work has been featured on Bankrate, Experian, The Balance, Business Insider, Credit Karma, and more. She’s also the author of The 60-Minute Money Plan, a self-published intro to budgeting guide for people who hate budgeting.

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