When is Debt Settlement a Good Option?

By Aaron Sarentino Reviewed by Minh Tong Updated Mar 21, 2022
When is Debt Settlement a Good Option?

It’s possible that you’ve reached a point where it’s just not possible to pay off your debt. Maybe you’ve been laid off or taken a pay hit, received a large medical bill or had an unexpected emergency expense. Whatever the reason, one option is debt settlement

Debt settlement may just be one of the cheapest ways out of debt, according to the American Fair Credit Council (AFCC). A 2020 report concluded that, on average, consumers saved $2.64 for every $1.00 fee assessed, and that over 98% of offered settlements resulted in a decrease in debt that exceeded client fees. 

The question then, is not whether debt settlement is an effective way to finally eliminate your debt, but whether it is a good option for you. 

How Debt Settlement Works

Debt settlement is a strategy used to resolve delinquent debt for a lower amount than you owe. First, you hire a debt settlement company. You will stop paying minimum monthly payments on your debt, and instead contribute a monthly payment to a dedicated savings account until there is enough for the debt settlement company to negotiate a settlement offer to the creditor for less than the amount owed.

The creditor may agree to the settlement offer because they know you can always file for bankruptcy, which could eliminate their ability to collect anything from you. So, they are often willing to accept less than what is owed through debt settlement. The debt settlement company will then facilitate payment to the creditor and collect their fee, and you have just eliminated your debt at a discount—a win-win-win. Read our article on debt collectors: Know your rights when dealing with debt collectors.

Benefits of Debt Settlement

Debt settlement is a viable solution for individuals in a pinch. It allows a debtor and their creditor to agree on a reduced repayment. Debt settlement offers might range from 10% to 50% of what you owe depending on the situation. Additionally, after a creditor accepts a settlement offer, the creditor is forbidden from harassing you for the money, and you can no longer be sued over the debt, as long as all payments under the offer are made timely. 

The report mentioned in the introduction of this article found the following:

  • Clients saw more savings the longer they participated in a debt settlement program, on average.
  • Three of every four debt settlement program enrollees settled at least one account within 4-6 months of enrollment.
  • On average, clients reduced debts of about $30,000 to $35,000 by approximately $9,500 after fees. 

We can clearly see that debt settlement offers an excellent path toward financial health, but is it right for you personally? 

Should You Try Debt Settlement?

Inability to pay your debt leads to a dangerous downward spiral: the longer you don’t pay, the more you owe, and the more you owe, the less able you are to pay. For individuals that are simply unable to pay off their debts, debt settlement offers a simple way out. If you decide to go with debt settlement, you should be wary of companies that guarantee a successful debt settlement for money upfront. This is typically a red flag for a scam. 

Should you decide that debt settlement is the right path for you to take, you can get in touch with a trusted consumer credit and debt relief solution company like Americor

Contact a certified debt consultant today to receive a free debt analysis. 

Click here to apply: https://apply.americor.com/new


Aaron Sarentino

Aaron oversees executive, administrative and management functions for the firm. Aaron has a Bachelors in Business Administration from Pepperdine University. He is responsible for helping customers at every stage of the debt settlement process and focused on building loyalty to ensure long-term client retention by addressing customer issues. Aaron plays a pivotal role in the upliftment of the Americor team to ensure the best possible customer experience for clients.