Is debt resolution legit?

By Gina Freeman

Reviewed by James Heflin

Feb 19, 2024

Read time: 8 min

Couple doing home finances together at home

Key takeaways:

  • Debt resolution is an agreement between a creditor and the person who owes them money to resolve the debt for less than the total amount owed.

  • You can negotiate with creditors yourself or work with a reputable debt resolution company. 

  • Scammers hide the truth, make false promises, and ask for upfront payment.

If debt has you cornered, you’re smart to face it down and look for solutions. Finding the right debt strategy can be a real head-scratcher, and you’re right to question anything that seems too good to be true. It's completely understandable to look for legitimate routes that offer financial relief—but also to watch out for scammers. 

Debt resolution isn't about taking the easy way out. It’s about responsibly managing your situation so that you can get busy creating a better financial future. 

We’ll shine a light on debt resolution so that you can make an educated decision about whether it’s an appropriate solution that could help you tackle stressful debt.  

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What is debt resolution?

The short version: debt resolution is working out an agreement with your creditors to accept less than the amount you owe as payment in full. That’s it. 

You can resolve debts yourself, or you can let a reputable debt resolution company do the heavy lifting for you.

A debt resolution company could make the whole process smoother. This can be especially helpful when you have multiple debts to resolve. Professional debt resolution typically follows these steps:

  1. A debt assessment: A licensed debt expert will review your debts, income, and expenses to determine whether debt resolution is a viable solution for you. Reputable debt resolution companies will provide this assessment for free, and they will only offer debt resolution if it is appropriate for your financial situation. Debt resolution is meant to help people who can’t keep up with their minimum debt payments due to a legitimate financial hardship. If debt resolution could meet your needs, they’ll propose a plan that works for your budget. You'll include (or enroll) your unsecured debts (such as high-interest credit cards, medical debt, or personal loans) in the program.

  2. You make one monthly deposit: Once in the program, you make one monthly payment into a dedicated account that the company sets up for you. It’s your money, and you always have access to it. The money that builds up in this account will be used to pay the settlements made with your creditors.

  3. The company negotiates with your creditors for you: As the funds build up in your dedicated account, the debt resolution company will work with each of your creditors on your behalf. They will try to reach an agreement with each creditor to allow you to settle your debt for less than the full amount you owe.

  4. You approve offers and authorize payments: Each time the company reaches an agreement with a creditor, they will reach out to you for approval. You don’t have to accept an arrangement unless you agree with the terms. After you approve an offer, the agreed-upon amount is paid to the creditor from your dedicated account. Once the creditor has received a payment, the debt resolution company will then take its fee. 

  5. Your debt is resolved: Once all the debts you included in the program have gone through this process and are resolved, you'll have completed the program and be free of the debt.

Is debt resolution too good to be true?

Debt resolution is a legitimate financial strategy that could help you clear unaffordable balances for less than you owe. 

If you are considering debt resolution, it’s good to weigh the pros and cons. Here are a few details that are important to understand.

  • Debt resolution is only for unsecured debts. Unsecured debts are things like credit cards, medical debts and personal loans. It doesn’t work for secured debts like car loans and mortgages.

  • Debt resolution is an ongoing process. Creditors may step up collection efforts if you miss payments. It typically takes a few months for a debt resolution company to settle your first account, and the entire process can take as little as 2 to 4 years, depending on how many debts you have and the total amount of debt you include in the program.

  • Debt resolution is a financial hardship program. It’s a legitimate solution for people who truly can’t afford to pay their debts due to a significant financial hardship.

  • You do have to repay some of what you owe. Debt resolution is not a get-out-of-jail-free card. It’s a process for getting creditors to accept payment for less than the total amount you owe and consider the debt completely resolved. 

  • If you miss payments while you build up funds to resolve debts, your credit profile is likely to suffer. However, if you’ve already fallen behind on your payments before starting the program, your credit profile may have already been impacted. If you are struggling to make even your minimum debt payments, it may be more urgent to address your debt than maintain your credit score. 

  • Forgiven amounts may be subject to federal income taxes. 

  • If you get help from a debt resolution company, you will pay fees for their services. By law, reputable debt resolution companies can only take their fees once these three things have happened: 

    • they have reached an agreement with a creditor

    • you have approved the settlement offer

    • at least one payment has been made to the creditor from your dedicated account 

No reputable debt professional will say resolving your debt is painless. That said, debt resolution could help you solve your debt in an affordable way, without publicly filing bankruptcy and letting a judge decide your fate. Once they resolve their debt, most people manage their finances better and feel less financial stress. 

What does a debt resolution company do?

A reputable debt resolution company employs a team of experienced professionals to help you get rid of your debts, including: 

  • Licensed debt consultants who will evaluate your situation and create a debt resolution plan based on your goals, the number and amount of debts you have, and the amount you can afford each month to pay down your debts.

  • Expert debt negotiators who will work with your creditors to reach agreements on how much they will accept to consider your debt fully resolved. 

  • Customer service representatives who are available to answer questions, make adjustments to your plan, and provide other support as you progress through your program.

Some debt resolution companies will also provide additional services and support such as:

  • An online dashboard or app you can use to check the balance of your dedicated account, review the status of your debts, and track your progress

  • Educational resources, content, videos, and tools to help you learn more about how to deal with debt and better manage your money

Finally, established debt resolution companies have technology, systems, and relationships in place that enable them to reach good agreements with creditors.

  • Sophisticated technology and algorithms that help them prioritize which debts to settle first, and when

  • Established working relationships with many different types of creditors

  • Systems and processes in place to pay settlements directly to your creditors once you have approved

Why would you pay someone to help resolve your debts?

You can negotiate with creditors yourself. However, not everyone is effective with the process. Expect to prove that you’re experiencing ‌financial hardship, and be prepared to justify whatever help you request. Understand that it'll probably be complicated—and time-consuming—if you’re dealing with multiple creditors and balances. An experienced debt professional may get you better results than you could get on your own—and save you a few headaches.

How can you tell if a debt resolution company is a scam?

Debt resolution by scammers is too good to be true. Here are some claims a scammer might make:

  • You can “wipe out” your debt for “pennies on the dollar.”

  • Collection calls will stop completely as soon as you sign up. In fact, enrolling in a debt resolution program won’t stop collection efforts. But your creditors might be willing to stand down once they understand that you’re actively taking steps to clear your debts.

  • ”We guarantee to settle your debts for half of what you owe.” Creditors aren't obligated to negotiate debt with anyone, so debt resolution companies can’t make promises of specific outcomes or percentage reductions. 

Scammers may pressure you to sign up right away. And they may ask you for payment upfront (which is illegal) and then do nothing about your debt. Legitimate debt resolution companies never charge upfront fees—by law, they only earn their fees once they negotiate an agreement you accept.

How can you tell if a debt resolution company is legit?

If you suspect a scam, you can do some quick online research on the company you’re considering:

  • Check that they are accredited: The AADR (American Association for Debt Resolution) is the national association of debt resolution companies and holds its member companies to high consumer protection and operational standards.

  • Read consumer reviews and ratings at sites such as Trustpilot or the Better Business Bureau. Reputable companies will have established profiles and validated customer reviews on these sites.

What’s next?

If debt resolution sounds like it might be helpful to you, take these steps:

  1. Collect the latest statements for your credit card accounts, medical debts, payday loans, and any other unsecured balances you want to negotiate.

  2. Assemble your income information and list your living expenses.

  3. Be ready to discuss your situation and state your financial hardship.

  4. Contact a debt expert for a free evaluation.

Gina Freeman - Author

Gina Freeman has been covering personal finance topics for over 20 years. She loves helping consumers understand tough topics and make confident decisions. Her professional history includes mortgage lending, credit scoring, taxes, and bankruptcy. Gina has a BS in financial management from the University of Nevada.

James Heflin - Author

James is a financial editor for Achieve. He has been an editor for The Ascent (The Motley Fool) and was the arts editor at The Valley Advocate newspaper in Western Massachusetts for many years. He holds an MFA from the University of Massachusetts Amherst and an MA from Hollins University. His book Krakatoa Picnic came out in 2017.

Frequently asked questions

Simply being enrolled in a debt resolution program doesn’t affect your credit score. But your credit standing could be affected in other ways as you navigate to the other side of your debt.

The greatest credit damage usually comes from missing payments and going into default on your debts. This is true no matter why you miss the payments. 

Also, resolved debts are reported to the credit bureaus as “settled,” which is better than delinquent but less favorable than “paid in full.” 

The higher your credit score is, the more points you could lose when negative information hits your credit file, particularly at the time it’s happening. But since the most recent information has the greatest impact on your credit, as those negative events fall further behind you, they hurt your credit profile less and less.

You can go a long way toward rebuilding healthy credit by paying your bills on time and keeping credit card debt low (or zero).

No. Although debt management plans from credit counselors require you to cancel your credit cards, debt resolution companies don't require this. 

There was no government debt forgiveness plan during COVID, although there were student loan payment pauses, and some rent suspension programs. And there are still no government debt forgiveness programs for private debt not owed to the government.

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