What is debt resolution and how can it help you?
By Aaron Crowe
Reviewed by Kimberly Rotter
Jul 09, 2023
Read time: 7 min
Debt resolution means working out an agreement with your creditors to pay less than the full amount you owe.
You can negotiate with creditors yourself or work with a professional debt resolution company.
A debt resolution program can take two to four years to complete.
Asking for help isn’t always easy, especially when you’re struggling with overwhelming debt. If you’re beating your head against a wall trying to solve your debt problems by yourself, it may be time to ask for help. And that’s ok. If debt is taking over your life, you may be able to get the help you need through debt resolution.
What is debt resolution?
Debt resolution is negotiating with your creditors to accept less than the full amount you owe but consider it payment in full.
Debt resolution is a serious strategy for big debt problems. Creditors want to be repaid in full. But they might be willing to accept less than what you owe if they believe you genuinely can’t afford to fully pay them back.
How debt resolution works
In a nutshell, resolving a debt involves contacting your creditor to explain your situation and making an offer for how much you are able to pay (less than the full amount you owe). You could offer a one-time lump sum or suggest a series of payments. Once you come to an agreement and do your part, the creditor considers the debt paid in full.
Debt resolution could help you:
Resolve your debts for less than you owe.
Get rid of debt faster than by making minimum monthly payments.
Streamline your finances without a loan.
Not everyone can successfully negotiate debt. Creditors might not work with you if they believe you can keep up with your payments. Debt resolution is usually more effective if the creditor understands that you have a financial hardship. Many people try debt resolution when they are struggling to keep up or have already fallen behind on their monthly payments. Missing payments shows the creditor that you have some financial challenges, but it also can negatively affect your credit.
A professional debt resolution program typically takes two to four years, but in some cases it can take longer. The length of time will depend on how much debt you have, how many debts you include in the program, and how much you can afford to pay each month. People who work with professional debt resolution companies enroll about $30K in debt and 6–7 different debts on average. That’s a lot of debt—and several creditors to deal with.
Professional debt resolution
You can hire a professional debt resolution company to negotiate with your creditors on your behalf.
There are five steps to resolving debts with the help of a debt resolution company:
Start with a free debt evaluation. You’ll talk with a licensed debt consultant about your financial situation, debts, and goals. Your consultant will build a custom debt resolution plan for you that works with your income and expenses. You can do the free debt evaluation online or over the phone.
Make one monthly program deposit. The debt resolution provider will set up an account (often called a Dedicated Account or a Program Account) where you can build up funds for making settlement offers. You make one affordable monthly deposit into this account—that deposit is often lower than your minimum monthly payments.
Reduce your debt. The company’s expert negotiators work with your creditors to lower your debt and reach agreements, called settlements, for how much they will accept.
Approve your settlement offers. When the company reaches a settlement agreement with your creditor, they’ll send the offer to you for approval. Once you’ve approved the terms, you authorize the payment to the creditor from your account. Then the debt resolution company’s fees are paid from the same account. Reputable debt settlement companies never charge upfront fees.
Get rid of your debt. Once all the debts you enrolled in the program are fully resolved, you will have completed the program, and you’ll be free of those debts.
DIY negotiation vs debt resolution
Do you have good negotiating skills? Negotiating with your creditors yourself is a strong test of these skills. You could call or write to your lenders, explain your financial situation, and ask them to lower your debt, reduce your interest rate, or waive fees.
They may push back hard, and you might have to go through several rounds of communication before you come to an agreement.
DIY debt negotiation is probably the cheapest way to resolve your debt, since you’ll save on fees, as long as you’ve got the time and energy to devote to the process. You’ll also need to have money saved up that you can use to make settlement offers, which can be difficult when you’re buried in debt.
Tough negotiations make some people uneasy. If you’re not comfortable with the process, you could hand it off to a professional debt resolution provider for the heavy lifting.
One advantage debt resolution providers have is existing relationships with most creditors. Their expertise, teams of negotiators, and established creditor relationships may help you get better results.
What kinds of debt can you resolve?
You can include many kinds of debt in a debt resolution program, but some debts can’t be negotiated. First, you’ll want to look at whether your debts are secured or unsecured.
Unsecured debts are good candidates for debt resolution. These debts aren't guaranteed by collateral. Collateral is something valuable that you pledge to the lender as a guarantee that you’ll repay the loan.
Credit card debt
Personal loans (unsecured)
Private student loans
Department store credit cards
Lines of credit
Secured debts can’t be resolved through debt resolution. These debts are tied to an asset. If you don’t repay the debt, the lender has the right to sell the asset to recover what you owe.
Certain other kinds of debts are also ineligible for debt resolution, but many of them have their own process for helping struggling borrowers make it through financial hardships.
Home equity loans
Secured personal loans
Federal student loans
How do you qualify for debt resolution?
Hardship: Creditors may be willing to work with you if you are struggling to keep up or have already fallen behind on your monthly debt payments. This can happen if you’ve had a major financial setback or hardship—such as a divorce, a medical emergency, or a significant unexpected expense (like a big car repair bill or having to replace your roof).
Debt: Professional debt resolution is an option if you have at least $7,500 in debt. Some companies may have a higher minimum.
Deposit: You need to be able to consistently make the monthly contributions to your account. Your debt consultant will look at your income, your debts, and your other monthly commitments to determine whether you can afford the deposits.
How much does debt resolution cost?
Debt resolution isn't a loan, so you won’t pay interest over time. You’ll pay a flat fee of 15–25% of your enrolled debt (the total amount of debt that you include in the program). You don’t have to pay those fees up front. By law, debt resolution companies can’t charge you any fees until they have reached an agreement with a creditor, you have authorized the settlement, and at least one payment has been made to the creditor. You also won’t get another bill to pay. The debt settlement company’s fee is paid from your account after the creditor is paid.
Does debt resolution work?
Yes, it does. According to an independent study commissioned by the leading national association of debt resolution companies in 2021:
Debt resolution provided, on average, $2.64 in savings for each $1.00 in fees charged.
Nearly all offered settlements—over 98%—resulted in a decrease of the consumer’s debt that was more than the fees for those settlements.
Among those people who joined a debt resolution program, three out of four had settled at least one account within the first four to six months after enrollment (here at Achieve, over 60% of our debt resolution members get their first settlement within the first 90 days).
Alternatives to debt resolution
Before you decide how to attack your debt problems, it’s a good idea to learn about all of your options. If you can qualify, you might be able to use a personal loan or home equity loan to consolidate debts. If you want to pay off your debts in full, try a debt snowball or debt avalanche strategy. If you can’t borrow or pay your way out of debt, research Chapter 7 and Chapter 13 bankruptcy to see if one of those might help you.
In any case, taking the time to learn about your options is the first step on the path to a better financial future. By doing the research, you’re doing a good thing for yourself.
Key debt resolution terms to know
Account, Dedicated Account, or Program Account. This is an account that the debt resolution company will set up for you. It’s your money, and you control the account. When the debt resolution company negotiates a settlement for you, you authorize payments to be made to your creditors from this account.
Deposits. When you enroll in a debt resolution program, you’ll set up automated scheduled transfers from your bank account into your account. Your monthly deposit will always be the same. It’s important to stay consistent with your deposits. They go toward funding settlements.
Settlement. This is an agreement that the debt resolution company will reach with your creditor to reduce what you owe on a debt. After all the payments have been made based on the agreement, your debt will be resolved, and the creditor will consider it settled.
Aaron Crowe is an Achieve contributor. He is a freelance journalist who specializes in writing about personal finances. He has worked as a reporter and editor at newspapers and websites for his entire career.
Kimberly is Achieve’s senior editor. She is a financial counselor accredited by the Association for Financial Counseling & Planning Education®, and a mortgage expert for The Motley Fool. She owns and manages a 350-writer content agency.
Frequently asked questions
Can debt resolution hurt my credit?
Debt resolution may have a negative impact on your credit for two reasons. Mainly, the damage comes from missed payments. Also, when an account is closed and reported as “Paid-settled” that's less favorable than “Paid as agreed.”
Will debt resolution get rid of all of my debts?
No. Debt resolution isn't a practical strategy for secured loans like mortgages and car loans, nor can it be used for tax debt, utility bills, or student loans.
Is debt resolution the same as debt consolidation?
Debt resolution isn't a loan. It’s a process of negotiation. Debt consolidation is taking a new loan to replace one or more old loans.
They are similar in that they can both result in a single monthly payment. If you enroll in a debt resolution program, you’ll make a single monthly payment into a Dedicated Account. If you get a new loan to pay off, say, three credit cards, you'd reduce your monthly payments from three to one.
Is debt resolution the same as debt forgiveness?
Will debt resolution stop creditor harassment?
Creditors aren't required to participate in a debt resolution program. Many creditors, however, are willing to stop collection efforts once they know you're actively working on a strategy to get rid of your debts.