Debt Settlement Pros & Cons
Debt settlement can meaningfully reduce what you owe, but it comes with real trade-offs. Here's the specific list for settlement — for how it compares to debt relief broadly, see Debt Relief Pros & Cons.
Pros
- • Potential to pay significantly less than the total balance owed
- • A defined end date — typically 24-48 months
- • One consolidated deposit instead of juggling multiple creditor payments
- • An alternative to bankruptcy for many consumers
- • You retain control of your dedicated savings account
Cons
- • Credit score impact during the program from missed payments and settled-account notations
- • Not guaranteed — creditors aren't obligated to negotiate every account
- • Program fees, typically 15-25% of enrolled debt
- • Possible tax consequences — forgiven debt may be reported as income
- • Possible lawsuit exposure while accounts sit delinquent awaiting negotiation