What's the difference between a credit counselor and a debt settlement or debt relief company? | Consumer Financial Protection Bureau (2024)

Credit counseling services to help you deal with debt are different from debt settlement or debt relief companies in a number of important ways.

Credit counseling services that assist with debt:

  • Usually non-profit organizations
  • Advise you on managing your money and debts and help you budget your payments
  • Reach agreed upon payment plans or agreements with your creditors to ensure that the creditors will not pursue collection efforts or charge late fees while on the plan
  • Usually do not negotiate any reduction in the amounts you owe - instead, they can lower your overall monthly payment
  • Do not advise you to stop paying your debt, but may help negotiate your monthly payments
  • Payment plans do not usually have tax implications

Debt settlement companies:

  • Usually are for-profit companies that charge a fee for their services. Generally, these companies cannot charge you until after they perform services
  • Offer to arrange settlements of your debts with creditors or debt collectors
  • Often have no up-front agreements with creditors. Some creditors will not negotiate with debt settlement companies
  • Typically offer to pay off your debts with a lump sum payment that you save up in an independent account that you control
  • Usually advise that you stop paying your creditors until a debt settlement is negotiated with creditors, which may damage your credit and result in your being sued
  • Debt settlement may involve debt forgiveness, which may have tax implications

Credit counseling

Credit counseling organizationsare usually non-profit organizations that advise you on managing your money and debts. They usually offer free educational materials and workshops. An initial counseling session typically lasts an hour, with an offer of follow-up sessions.

Note:Credit counselors may help you organize a "debt management plan" for all your debts. Under a debt management plan you make a single payment to the credit counseling organization each month or pay period. The credit counseling organization then makes monthly payments to your creditors.

Under debt management plans credit counselors usually do not negotiate any reduction in the amounts you owe - instead, they can lower your overall monthly payment. They may do so by getting the creditor to increase the time period over which you can repay a loan. They may also get creditors to lower the interest rates. Although most credit counseling organizations are non-profits, they may charge fees for their services that they take out of the payments you make to them.

Debt settlement

Debt settlement companies offer to arrange settlements of your debts with creditors or debt collectors for a fee. They typically offer to pay off your debts with lump sum payments that you have to save up before a settlement. If a debt settlement company requires you to save up funds in an account, these funds still belong to you. The account must be administered by an independent third party and be under your control. You are entitled to withdraw funds held in that account at any time without penalty.


The Federal Trade Commission has adopted a rule that says you can't be charged a fee until the debt settlement company has met three requirements:

  1. A successful result must be reached. The debt settlement company must have renegotiated, settled, reduced or otherwise changed the terms of at least one of your debts.
  2. There must be an agreement between you and the creditor/debt collector. You must agree to the settlement agreement, debt management plan, or other result reached by the debt settlement company with your creditor or debt collector.
  3. You must have made a payment to the creditor. You must have made at least one payment to the creditor or debt collector as a result of the agreement negotiated by the debt settlement company.

If you are considering debt settlement, make sure you carefully read your contract so you know how fees are determined.

Warning: Beware of debt settlement companies that charge up-front fees in return for promising to settle your debts. You can't be charged a fee before they actually settle or reduce your debt. You should also be cautious of debt settlement companies that instruct or advise you to stop making payments to your creditors. If you stop making payments, you will likely damage your credit. You may face collection efforts, additional late fees, and penalty interest charges, and you might be sued. These fees and charges will cause your debts to grow larger. In this way, debt settlement may cause your total debt-load to grow, even if the debt settlement company settles one or more of your debts.

Other information to keep in mind

  • Many creditors will not negotiate with debt settlement companies. Also, many creditors and debt collectors will not negotiate how much they will settle for. Instead, they will have standard policies about how much loan principal they will forgive when you haven't made payments for a certain period of time. This means debt settlement companies usually can't get better terms than you could get by negotiating with your creditors and collectors yourself.
  • Debt settlement companies cannot guarantee the amount of money or percentage of debt that you might save by using their services. They also can't guarantee how long the process will take. Beware of companies that say otherwise.
  • Neither credit counselors nor debt settlement companies can erase all of your debts.
  • If you simply don't have enough income to pay what you owe, you may also consider filing for bankruptcy. Consult a bankruptcy attorney to learn more.
What's the difference between a credit counselor and a debt settlement or debt relief company? | Consumer Financial Protection Bureau (2024)


What is the difference between a credit counselor and a debt settlement company? ›

Credit counseling organizations are usually non-profit organizations that advise you on managing your money and debts and usually offer free educational materials and workshops. Debt settlement companies offer to arrange settlements of your debts with creditors or debt collectors for a fee.

Are debt relief and debt settlement the same thing? ›

Debt settlement companies, also sometimes called "debt relief" or "debt adjusting" companies, often claim they can negotiate with your creditors to reduce the amount you owe.

What is the difference between DMP and credit counseling? ›

Credit counseling is really about education on how to reduce debt, whereas a DMP is an actual plan or program you follow with the creditor or credit counseling group in order to reduce and eventually eliminate it.

Who is the best person to talk to about debt consolidation? ›

A good credit counselor will spend time reviewing your specific financial situation and then offer customized advice to help you manage your money.

Should I hire a debt settlement company? ›

In almost all cases, it's better to hire a reputable attorney rather than a debt settlement company if you want help negotiating debt settlements. A lawyer can negotiate on your behalf, defend you in court if you get sued, and tell you about your legal options.

Is it smart to settle with a debt collector? ›

If you're feeling overwhelmed by debt and having trouble keeping up with payments, it's smart to take a breath and consider all of your options. While many people consider debt settlement as an easy way out, this strategy isn't guaranteed and has a major impact on your financial health in the following years.

Is debt settlement better than not paying? ›

Despite the potential downside, settling a debt by making partial repayment is better for your credit (and peace of mind) than neglecting it and leaving it unpaid. If you ignore a debt, the creditor will typically turn it over to a collection department or third-party collection agency.

Who is the best debt settlement company? ›

Best Debt Settlement Companies of May 2024
  • National Debt Relief: Best Debt Relief Company for Fee Transparency.
  • Pacific Debt Relief: Best Debt Settlement Company for an Established Track Record.
  • Accredited Debt Relief: Best for Quick Resolution.
  • Money Management International: Best Nonprofit for Debt Relief Help.

Who qualifies for debt settlement? ›

Anyone who is having a hard time making their credit card payments may qualify for debt settlement programs. However, some companies require borrowers to have a specific amount of debt — like $10,000 — to qualify for their services.

What is the success rate of credit counseling? ›

Credit counseling success rate

According to the Federal Trade Commission (FTC), only 21% of consumers successfully complete their debt management plans. This is because a slight interest rate reduction plus waiving over-limit fees and late charges won't help if the debt is overwhelming.

Do most creditors accept DMP? ›

Yes – creditors are under no obligation to accept your DMP. They might do this if they don't want to accept reduced payments or feel you could afford to pay more. If they refuse to negotiate with your DMP provider, it can be worth negotiating with them yourself. Outline what you can afford to pay each month and why.

How to get rid of $30k in credit card debt? ›

How to Get Rid of $30k in Credit Card Debt
  1. Make a list of all your credit card debts.
  2. Make a budget.
  3. Create a strategy to pay down debt.
  4. Pay more than your minimum payment whenever possible.
  5. Set goals and timeline for repayment.
  6. Consolidate your debt.
  7. Implement a debt management plan.
Aug 4, 2023

Can I be denied debt consolidation? ›

Lenders like to see a credit score of at least 670 for a debt consolidation loan, but probably closer to 700 just to be safe. It's not the only factor that matters, but a low credit score could stop you from getting a debt consolidation loan with reasonable interest rates and terms.

Is it hard to get approved for debt consolidation? ›

You'll typically need a credit score of at least 700 to qualify for a debt consolidation loan with a competitive interest rate. Although a lower credit score doesn't automatically equal a denial, as some lenders offer loans for bad credit, the borrowing costs will likely be higher.

Does debt settlement destroy your credit? ›

Debt settlement can eliminate outstanding obligations, but it can negatively impact your credit score. Stronger credit scores may be more significantly impacted by a debt settlement. The best type of debt to settle is a single large obligation that is one to three years past due.

What is the purpose of a credit counselor? ›

Credit counseling organizations can advise you on your money and debts, help you with a budget, develop debt management plans, and offer money management workshops. Working with a credit counselor can be a great way of getting free or low-cost financial advice from a trusted professional.

What is a debt settlement company? ›

Private debt settlement companies are for-profit entities that charge a fee of 15%-25% of the debt the company is originally asked to settle, or the lower settlement amount. When you enter into an agreement with a debt settlement company, you will be asked to stop making payments to your creditors.

What does a debt settlement specialist do? ›

Certified consumer debt specialists are financial professionals who assist consumers with debt negotiation and settlement. Debt settlement is something you can do on your own, but there are some advantages to using a certified consumer debt specialist.


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