My No B.S. Guide to What Works and What’s a Scam
Debt settlement is like buying a used car from a guy in a dark alley—you might get a great deal, or you might get completely screwed. It’s been around forever, as old as borrowing itself, but these days, it’s been turned into a gold mine for companies that care more about their profits than your financial future.
Let’s cut through the noise, break some myths, and talk about when settling your debt makes sense, when it doesn’t, and how to do it the right way.
What Is Debt Settlement?
Debt settlement is when you negotiate with a creditor to pay less than what you owe. Why would they accept that? Because sometimes getting cash now is better for them than chasing you down for years. The process is nothing new—in fact, even the U.S. government has used debt settlement strategies, going all the way back to the Civil War.
What is new is the way debt settlement has been oversold, often by commission-driven salespeople who don’t care about your best interests. Some companies just straight-up take your money and disappear. Others make the process so difficult that people quit, losing their upfront fees in the process.
The bottom line? Debt settlement isn’t a scam, but a lot of the companies selling it have proven to be.
Debt Settlement Pros: When It Might Make Sense
✅ You Have Cash Ready to Go – If you have about 50% of what you owe in cash and can make a lump sum payment, you’re in a strong position to negotiate.
✅ You Can Settle Without Raiding Your Retirement – If you have to drain your 401(k) to settle, think twice. The long-term financial hit often isn’t worth it.
✅ You’re Facing Chapter 13 Bankruptcy – If a second opinion from a bankruptcy attorney confirms you must file Chapter 13 instead of Chapter 7, settlement might be the better option.
✅ You Won’t Owe Taxes on Forgiven Debt – If you’re legally insolvent, you may not have to pay income tax on forgiven debt. (Use IRS Form 982).
✅ Your Creditor Is Making You an Offer – Some creditors offer settlements without you even asking. If the terms are good, it could be worth taking.
✅ Performance-Based Fees Only – Legit debt settlement companies charge fees after your debt is settled, not upfront. But even among them, fees vary widely—so read the fine print.
✅ When Used Strategically, Debt Settlement Can Make Sense – If you have a clear plan, understand the risks, and don’t fall for sales pitches, settling some debts can be part of a smart financial strategy. Just remember: there’s no one-size-fits-all solution.
Debt That Can and Can’t Be Settled
Not all debt is created equal when it comes to settlement. Here’s a quick breakdown:
✔ Debt That Can Often Be Settled:
- Credit card debt
- Personal loans
- Medical bills
- Collections accounts
- Old utility or phone bills
- Private student loans (with a professional debt coach’s help)
✘ Debt That Usually Can’t Be Settled:
- Secured debt (mortgages, car loans)
- Federal student loans (almost never, except in rare legal cases)
- Child support & alimony
- IRS tax debt (though other negotiation options exist, like bankruptcy)
- Court-ordered debts (like judgments)
FTC Rules: The Truth About Settlement Success Rates
A lot of debt settlement companies throw out numbers like “We settle 60% of debt!” but here’s what the FTC requires:
✅ They must include dropouts – If only half of their clients complete the program, the success rate is cut in half.
✅ They must factor in fees – If they save you $5,000 but charge you $2,000, they can’t claim full savings.
✅ They must disclose ALL debts enrolled – Not just the ones they successfully settled.
This means that most of the “success rates” advertised are wildly misleading. If a company won’t be fully transparent about their numbers, run.
The Smartest Way to Settle Debt
✅ Do It Yourself (DIY) – With the right guidance (like working with a debt coach), you can negotiate settlements yourself and avoid high fees.
Do You Have a Question You'd Like Help With? Contact Debt Coach Damon Day. Click here to reach Damon.
✅ Work With a Reputable Debt Coach – A real expert like Damon Day can help you decide if settlement is right for you and walk you through the process.
✅ Consider Bankruptcy First – If your debt is overwhelming, bankruptcy might be the better move. It wipes out debt faster and often costs less in the long run.
✅ Understand All Your Options – Before choosing settlement, look at credit counseling, bankruptcy, and any other relief options to find the best fit.
(Source: The Truth About Debt Settlement Success Rates)
Final Thoughts: Is Debt Settlement Right for You?
For the right person, debt settlement can be a smart move. But for most people, it’s just another overhyped, overpriced option that leaves them worse off. Before jumping in, get a second opinion from a trusted expert.
Want to know exactly which debt relief option makes the most sense for you? Use the How to Get Out of Debt Calculator to compare all your options.
And if you’ve had experience with debt settlement—good or bad—drop a comment below. Let’s talk about it!
Steve,
I ended up taking the advice on your site and there’s going to be an end to my living nightmare soon. I was paying 90% of my income to student loans and lost my job due to downsizing (incompetent managers who over-hired). I realized a few months before that happened that I as no longer going to be able to make payments reading your blog so I sought out assistance and started calling bankruptcy firms to see if anything at all could be done.
Needless to say the advice was priceless because I stopped paying my loans and spent my meager savings on a lawyer instead. This year the statute of limitations will be up, I won’t be held responsible for loans that aren’t even mine, and I don’t have to deal with threats from the likes of predatory banks. The predatory lender won’t be getting another penny from me. I already paid their loans back with interest but they decided to tack on loans that aren’t mine, refused to verify the loans, and refused to let me split payments between the principal and the interest. I don’t know why the federal government refuses the same thing and denies me the ability to send a check in (I refuse to do auto payments due to the horror stories) and split my payments between the principal and interest. I also encourage people to not take out loans period for college because it’s just not worth it.
I just wanted to thank you and to make sure you know you are making a difference.
Thank you for your kind words.
Comments in this thread prompted me to write, “Dear Melissa. The Conflict Between Debt Relief Sales and Consumer Needs.” Thank you. See https://getoutofdebt.org/51580/dear-melissa-the-conflict-between-debt-relief-sales-and-consumer-needs
Steve,
Good article, but…saying the majority of debt settlement companies close may be historically true but shouldn’t the effect of the 2010 rule change be considered, this statement may no longer be as relevant. Same can be said about your comment on vast numbers of debt settlement companies being scams.
I think you need to now write articles “using the same pattern” on credit counselors, equity/consolidation lenders and bankruptcy attorneys. “All” of these providers have incentive to sell their option to the consumer over other options.Even BK attorneys collect a nice fee for each file.
At our company if it is best we will refer our potential client based on their unique situation to a provider of another option, credit counseling, consolidation lender or a bankruptcy attorney (we are looking into a good DIY option too). Remember a referal is not always about a fee, most often it’s about a “reciprocal” referral. We do not take on every inquiry that comes our way but we try to earn something from every potential client even if it’s a referral.
Looking forward to the next 3 articles.
Thanks.
Melissa
It is an accurate historical statement and still posses a danger to consumers.
And while there are some companies out there acting in an above board way, they still remain in the minority based on what readers submit.
I’m sure I’ll get around to writing those guides as well.
As far as the scam comment, I invite you to cruise through the most scam reports filed by consumers and see the most common types of debt relief companies consumers complain about. https://getoutofdebt.org/category/scam-reporter/
I’m looking forward to you stepping out of the shadows and telling us the company you work for so everyone can take a look at your site.
Steve
I’ll throw a few cents in…
Good article Steve…
1. For the most part every situation is somewhat unique; hardship, income, assets, liabilities etc…
2. Term settlements are very much real and available. Play your cards right and with one steady monthly contribution and a few months of savings you can settle multiple accounts paid out over time.
3. Only a small majority of people who have successfully settled their debt (at whatever percentage) stop and think about the real savings as compared to making the minimum payments
Cheers!
Mike
Hi Buddy. I think your comment in inline with the article to have the cash on hand to negotiate settlements with all the creditors at once. This might mean saving up the money and then going for the settlement.
Just a few minutes ago I was contacted by yet another consumer that settled some but not others and the other creditors that would not settle, sued, so they filed bankruptcy anyway.
And yes, every situation is unique and different.
Thanks for participating.
Steve I wish I could pass on our company details, I am proud of the work we are doing here but our company management has a very strict policy regarding quoting the company name in any posts that staff makes in social media and online blogs. We unfortunately are not permitted to give our company name or use our company email address in Facebook/ Twitter posts etc. or any blog comments that we participate in. I understand the need for this policy as I’m sure you do too.
Melissa
You do realize how utterly ridiculous that is, right?
If you want to fight for a new, better, more compliant and transparent debt settlement industry, then hiding only nullifies your message.
What kind of message do you think that sends to regulators that read this site regularly? What it says is the debt settlement industry is so proud and forthcoming about what they do that they hide.
You criticize me about saying companies have folded and some were scams but you are not willing to stand up and be counted?
Bottom line – If your company believes in what they do then what do they have to be afraid of? Go get permission to be open.
Steve, this kind of attack from you is exactly why many companies would shy away from working with you (and there are many).
My company is not “hiding”, they allow staff members to share our individual thoughts and opinions wherever we like, my thoughts and opinions might not be exactly as the company thinks so they say to their staff don’t join us (our company) in your posts and comments.
Excuse me for thinking that your site welcomes the educated opinion of those who would share as you do allow anonymous comments??
If my company management wanted to play in your sandbox as a company, they certainly would, they just don’t think it is important to do so for many reasons and also considering the way you like to tear down companies (their opinion).
I’m sure regulators who visit your website and read reader comments understand full well what commenters are saying anonymous or not. I’m also sure that this isn’t the only online resource regulators concern themselves with.
I didn’t “critize you” for saying companies have closed and many are scams, I just asked if you had considered how much has changed in the industry since the rule change in 2010, are you that insecure to think it was “you” personally I targeted with that comment? I accepted your response to my comment.
You and your sidekick Damon do make it very hard to participate here in a civil conversation as every opinion from a commentor is immediately attacked as being a critizism of you and the article.
I’ve tried to share my opinions and much of what I know is good business practice but I will find another place to do this as many before me have.
Playing by your rules and standing up and being counted.
Melissa
Attack? Seriously?
If you have nothing to hide then whatever you are doing or whoever you should easily stand up and be proud of who you work for and who you represent.
Others from the industry are not afraid to come in and comment and say who their debt relief company is. Mike Reilly from Emerge America commented on this post, said who his company is and even linked to his company in the comments. He’s not afraid.
You accuse me of tearing down companies, and say it is the anonymous “their” opinion. So let’s deal with that. Is it your opinion I tear down companies?
Certainly I have been critical of company behavior but if you read my posts you will see all of the facts presented are backed up with source and supporting documents.
Every post has a button to report any error on the post. Companies have an opportunity to respond to anything they think is incorrect. So you want to make the claim or pass it on that some post is unfair, but what post. Let’s talk facts.
You claim Damon and I make it very hard to participate but as you notice we put our real names on our comments and stand behind them.
You and your company won’t do that. What message do you think that sends to consumers, not much has changed.
I agree with you Steve these anonymous commenters must have something to hide! You can control this in fact only you can control this.
I urge you to make commenting on articles at getoutofdebt.org “for members only”…this is a function of the Disqus commenting system that you use here…change the site rules and make people prove who they are to you before being able to comment or participate in any thread on the site.
You are right they are afraid and all hiding something and this would solve that!
Concerned loyal reader
In the past I’ve made it a requirement for industry folks to state their name and provided them an opportunity to link back to their company to get a little link love through the Disqus system.
If there was a way to make industry people be open and honest about who they are but all consumers to still post anonymously, I’d do that.
What do you think of the idea of making that a policy of the site to require industry folks to identify themselves or be blocked? That seems to be the best of both worlds.
Then that would take away all the fun of watching them argue themselves into a corner.
Did you scare them off? I stayed up all night waiting for answers to all the questions. (Maybe not really.)
Ya, I have noticed over the years, that sales people tend to get real shifty when I bring up the fiduciary obligation/conflict of interest issue.
They don’t really like to talk about that for some reason.
This is my first comment here and will likely be my last.
IMHO Steve & Damon’s have planned tactics for diverting attention away from any commenter who questions what they are saying and/or how they say it.
In this string for example:
Damon says:”that would take away all the fun of watching them argue themselves into a corner.”
He thinks it’s “fun” to try to get a commenter into an arguement with him? Very professional!
Damon will twist something a commenter has said into “an overwhelming flaw in their business model” whereas a reader with no axe to grind will see the same statement of the commenter totally diferent. He then describes the commenter as “real shifty” if they abandon the discussion because of his aggressive tone and don’t engage further with him. Again very professional!
IMHO Damon wins very few arguments and often looks very foolish trying.
Steve says: “I stayed up all night waiting for answers to all the questions”
He addresses any valid question regarding his position or comment with a barage of other questions. This repeats time after time on this website, Steve answers any question that challenges him with new questions back to the commenter.
I drop in here from time to and I can always count on this behavior but Steve & Damon with their agressive responses to commenters do destroy continued discussion from the commenters that they should be encouraging like Melissa in this discussion, I doubt that we will see her contribute here any more and that’s a shame.
IMHO Steve’s tactic of answering a question with a question or series of questions agressively asked doesn’t allow any discussion here to reach conclusion and I think that is what he hopes will happen.
Kudos to you Melissa, I understand your employer’s position regarding this internet website and others like it and I get that you would like to keep your job, shame on both Steve & Damon for the way they treated you regarding your need for anonymity.
Steve, I agree much more with what your commenters (Melissa & others) have said in these recent couple of forum threads than what you & Damon have spewed out.
Like one posters say Steve, if you don’t want anonymous comments, change your site rules! It is that easy.
Brent R. Martin
Brent,
I don’t know why you are being snide about my comment. It wasn’t a shot but a statement. I waited up till 2AM for a response before calling it a night. After I got up this morning I checked back in and there was still no response.
You said, “He addresses any valid question regarding his position or comment with a barage of other questions.” What question(s) are you alleging I dodged? I went back through all the comments here directed to me and I can’t find one.
And isn’t a bit hypercritical to accuse anyone here of having a bad attitude when your IP address and other names are used for posting rude comments in the past like, “Haha—you are such an A..hole?”
You said, “IMHO Steve’s tactic of answering a question with a question or series of questions aggressively asked doesn’t allow any discussion here to reach conclusion and I think that is what he hopes will happen.” But isn’t that how you have a discussion, otherwise you are just talking at each other without inquiry, response, and deeper investigation? See http://www.wikihow.com/Lead-a-Discussion
In closing, I believe Damon’s point was the “overwhelming flaw in their business model” is in regards to working to gain some value out of every referral rather than put the fiduciary needs of the consumer first. It is a valid point.
Which has the higher priority in your opinion, the needs of the consumer or the needs of the company?
i dont get it…melissa’s company has referral relationships with credit counselors, bk attorneys and consolidation loan lenders, they consult with the consumer and reach a concensus of the best option for the consumer and if it is not debt settlement they refer the consumer to a provider of the option they agree is best for the consumer maintaining their fuduciary duty to the consumer and sometimes earning a referral fee sometimes the promise of a referral back to them. I would bet there are a lot of times that they lose the potential client to another service without gaining any referral value too. there should be more companies that go this far…i bet there are a lot credit counselors, lenders and bk attorneys who dont
The issue was the statement “We do not take on every inquiry that comes our way but we try to earn something from every potential client even if it’s a referral.” And then there was the previous statement, “A potential client can be referred to another debt relief option to be better served and often a referral fee can be earned for the company, sending the client to another debt relief option need not be a lost opportunity to make money”
The position appeared to be their mandate was not to make the most appropriate referral but to aim for an exchange of value.
The fiduciary responsibility does not begin with the referral, it begins with the screening. For a more detailed examination of this topic, see https://getoutofdebt.org/27910/can-any-debt-relief-company-afford-to-do-the-right-thing-for-consumers
It would be an interesting discussion with Melissa to learn more about how her company specifically screens consumers for appropriateness of incoming clients and determine the criteria for referral. She has been unwilling to share additional details about who she works for so that topic can be explored.
“A fiduciary duty is the highest standard of care at either equity or law. A fiduciary (abbreviation fid) is expected to be extremely loyal to the person to whom he owes the duty (the “principal”): he must not put his personal interests before the duty, and must not profit from his position as a fiduciary, unless the principal consents.”
i dont see it that they were putting earning something from the consumer or the referral as their “top priority” over doing what is best for the consumer, everything melissa shared in all her posts seemed very honest and above board, why would she say that earning a referral was their “top priority”, she doesn’t say that anywhere, you and damon just assumed that this was the case and focused right in on that. “The position appeared to be their mandate was not to make the most appropriate referral but to aim for an exchange of value.”
i took away from reading all her posts even the one from last year that 1. the company was doing what is best for the consumer “first” 2. as often as possible for consumers not suited for their program getting a referral benefit by having referral relationships with credit counselors, equity lenders and bk attorneys, i see them as a very smart ds company, doing the best for their potential client and maximizing their earning opportunity, how can you and damon turn this around that they are looking out for themselves first? doesn’t make any common sense in this scenario at all. they should never share their company name with you two…you dont appear to play fair from what i see.
Hello confused,
I guess in the world view that you subscribe to, debt relief sales people typically don’t try and make a sale, but instead encourage the consumer to first call a credit counselor and get a quote and consider that option, then call a bankruptcy attorney and fully explore that option, then talk about the possibility of settling debt themselves, then tell the consumer about other debt settlement companies that are competitors but could be better options. Then say, after you do all that research, if you still think I am the best option then you can call me back.
You know, doing things with the consumers best interest first.
Meanwhile, back here on earth… That doesn’t really seem to happen very often now does it?
Consumers are taken advantage of every single day. It is my job to point out these things. If that rubs some anonymous sales people the wrong way because it might cost them a sale, well, frankly my dear, I don’t give a damn.
http://youtu.be/-lOLr0yQWuw
why do you assume that everyone who disagrees with what you say is a debt relief salesperson, i am not that. let me ask you what if the debt relief consultant (salesperson) and the consumer used Steve’s incredible debt calculator together to help decide which debt relief option would be best for this consumer would you feel the consultant was trying to steer this poor (but now educated) consumer in the wrong direction just to make a sale? next question do you think that bk attorneys, credit counselors and debt consolidation loan lenders also will do what it takes to make a sale or is it just debt settlement salespeople who do this? you make your living charging people $147 each to directly hear what you have to say about the debt relief options available to them…is it good business for you to post your comments over here on Steve’s website?
Just as a point of clarification for a comment you made about my calculator, the online calculator does not tell people what is best for them. It informs them of the pros and cons of each option to educate them so they can make an informed decision. https://getoutofdebt.org/resource/the-amazing-how-to-get-out-of-debt-calculator
Sure, and what if unicorns would crap lollipops? That would also be swell.
But we both know that is not how this world works.
Yes, bk attorneys, credit counselors, debt consolidation loan lenders, debt settlement sales people, car sales people (insert sales job here) as a whole focus, on making sales.
This is all the more reason why it just makes good sense for a consumer to speak with someone like me before they make a major financial decision that they know little about. I can make sense out of the confusing and conflicting stories and recommendations they receive when they call different sales people, and usually tell them why most of it is wrong and unnecessarily expensive.
Wouldn’t you agree that it is smart to get some independent advice before you enroll into a debt settlement program because the program’s sales person assured you it was the best thing you could do?
There are of course exceptions to every rule, but in the debt relief industry, a consumer is very unlikely to find a debt settlement company that really “explains and encourages” consumers to look at other options before making a decision.
Read my article here and you tell me what kind of advice you think any consumer that calls this company will get.
https://damonday.com/?GOOD3153/aggressive-phone-closers-needed-for-debt-settlement-training-provided/
There are some good guys out there, but they tend to be small companies and usually it is the owner of the company that is on the phone helping the client. Once you hire a typical sales person tasked with bringing clients on board, that tends to go out the window.
Yes, it is great for my business to post comments on this site. I give consumers an alternative point of view that they do not get from all the debt relief companies wanting to sell them a specific program. Commenting here is a great platform for me to share that and let consumers know that there is someone available that gets paid to provide straight-forward, no B.S. advice.
My clients really appreciate my service. You went to my website, did you see all of those testimonials from my clients? I must be doing something right. Wouldn’t you agree?
I thought my point was pretty clear.
Debt relief sales people have a huge conflict of interest when it comes to helping consumers vs earning a paycheck.
You stated that I win very few arguments…
Yet, I am not aware that anyone has attempted to counter my point. So where is the argument that I supposedly lost?
“but we try to earn something from every potential client even if it’s a referral.”
And that is the problem in a nutshell.
Damon you are just being nasty and a jerk…this poor person opened up and shared her company’s way of doing things with Steve and you can’t wait to rip her apart…what is the “problem” with what she says? Wouldn’t every good business person try to earn something from every lead? She says they are happy to refer the consumer to the right service provider for them and that they have referral partners for every option available to a consumer, she didn’t say that they try to cram every potential client into their option even if it’s not the best option for the client…can you read?
Oh, I am pointing out an overwhelming flaw in their business model and that makes me a nasty jerk? hmm.
You are right, that every good business person is going to try and earn something from every lead.
So that begs the very obvious question…
Is their objective to do what is best for the consumer, or is the focus as Melissa clearly stated, to try and earn a referral fee on every lead?
an overwhelming flaw? what is it? your tunnel vision is restricting your eyesight or you really can’t read. She never said a thing about earning a referral “fee” on every lead, she said that if the consumer should be using an option other than debt settlement they will refer the client to where they should be and that they have people providing the other debt relief service that they can refer the consumer to. She also said most referrals to another service “doesn’t involve a fee” but hopefully a reciprocal referral.You really should go back and read Melissa’s posts before you make yourself look even dumber.
Last I checked if I used these ” ” most people would understand that the words between them indicated a direct quote.
So since your cloak of invisibility is obviously restricting your vision, let me draw your attention to… and I quote directly from Melissa…
“but we try to earn something from every potential client even if it’s a referral.”
I merely pointed out the flaw. That trying to earn a referral fee on each client, while being good for business, is not usually in the consumers best interest.
For pointing out this logical conflict of interest, you anonymously come on here and call me a nasty jerk.
Hmm… I wonder which one of us might have more credibility with a consumer trying to get straight forward information?
Damon might respond but I went back to look at the original comment from Melissa to check your accusation. Melissa had said, “We do not take on every inquiry that comes our way but we try to earn something from every potential client even if it’s a referral.”
Damon said, “You are right, that every good business person is going to try and earn something from every lead.” He also said, “or is the focus as Melissa clearly stated, to try and earn a referral fee on every lead?” Which was slightly incorrect. He might have meant value instead of fee but he can address that. Effectively it is the same referral for value proposition.
Your statement was, “She never said a thing about earning a referral “fee” on every lead,”
Is trying to earn something from every referral, even if it is a new client or referral, still shooting for some type of value in return?
If the goal is “try to earn something from every potential client even if it’s a referral,” then I’m interested in your opinion how that supports putting the consumer first if the implication is a referral that does not return some kind of value is not the goal.
My background in medicine and patient care involved a lot of referrals to best treat patients. But never once was the a patient ever referred in order to get some “value” out of it. I don’t think you’d want your medical specialist doing that to you.
The referral should be made based on best care not best value in return.
I just came across another comment Melissa made a year ago on this site and I will quote an excerpt…
“A potential client can be referred to another debt relief option to be better served and often a referral fee can be earned for the company, sending the client to another debt relief option need not be a lost opportunity to make money”
Here is the link…
https://getoutofdebt.org/33888/debt-relief-options-for-consumers-is-the-delivery-system-broken#comment-415585715
Now, I have nothing against Melissa. I don’t know her, I don’t know her company or how they operate. I am simply saying that there is a conflict of interest between a debt relief company’s need to earn a profit and a consumers need to get the best information and advice.
And for my troubles I am called names. So do you want to keep digging this hole Mr. Anonymous Reader or would you like to quit while you are behind?
How did I rip Melissa apart?
Melissa, you asked for it so here is the article I just posted on credit counseling. See https://getoutofdebt.org/51647/consumer-credit-counseling-pros-and-cons-my-ultimate-guide-to-understanding-how-credit-counseling-works
Here is the one I did the other day on debt consolidation loans. See https://getoutofdebt.org/51558/the-get-out-of-debt-guy-debt-consolidation-loan-guide-to-acting-smart-being-wise-and-getting-results