Pros and Cons of Consolidating Debt with a Debt Settlement Program

Thinking of consolidating your debt with a debt settlement program? Here are a few things to keep in mind as you weigh your options:


You’ll pay less than what you owe

Debt settlement is the only form of debt consolidation where you pay back less than what is owed. If you owe significantly more than you can reasonably afford to pay back, settlement may be your best chance to clear away your debts and let you start fresh.

No credit requirements

You don’t need strong credit to qualify for a debt settlement program.


Your credit will suffer

Debt settlement works by withholding payments from your creditors until your accounts become delinquent. Those months and months of missed payments are very likely to harm your credit score. If you’ve already missed multiple payments and seen your credit score drop, this may not be as big of a deal, but if you want to preserve your credit, this may not be the method to use.

It can be costly

If you use a professional settlement agency, they will charge you for their services and it can add up. Settlement agencies can’t charge clients upfront fees, but they will collect a fee once it’s time to settle the debt – usually a percent of either the original debt balance or the amount of debt eliminated in the settlement. There may also be other fees associated with the ongoing maintenance of your account.

Forgiven debt may be considered income at tax time

Depending on how much debt was forgiven, you’ll likely have to claim that amount as income on your tax returns, which could cost you more money.

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