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Struggling with debt isn’t easy, especially when there’s not a clear path forward. Many people see a light at the end of the tunnel with a debt settlement program, though — and indeed, these programs can hold a lot of promise. Three-quarters of participants are able to settle their debt for less than they owe, according to industry stats.

When you work with a debt settlement company you build up money in a savings account that the company then uses to try to reach a deal (or settlement) with your creditors. The companies, which are also called debt relief companies, will likely recommend that you stop making regular payments to your creditors to help build leverage for these negotiations.

But how much can debt settlement actually save when you take everything into account? And how long does it really take? Since each individual account is negotiated separately over a period of time, it’s smart to try to get a picture of the total cost and benefit before you enroll in a program. Let’s get into the numbers.

Average settlement timeline: 4 years total

The time it takes to complete a debt settlement program varies from person to person, depending on a few factors:

• How much total debt you have: Debt settlement companies usually start trying to negotiate a settlement once you’ve saved up around 20% of the balance you owe on a particular debt. Larger debts tend to take longer to save up for.

• What type of settlement offer you accept: If you’re willing to work on a payment plan with the creditor or take out a loan to cover the settlement amount, you may be able to settle your debts quicker than if you wait for a single lump-sum settlement offer.

• How many accounts you enroll in the program: The more debts you have, the more time it’ll take since each debt is negotiated one at a time. The average customer usually enrolls around seven different debts.

• How diligent you are about making your program deposits: The debt settlement company will recommend a monthly deposit amount when you sign up with their program. That amount is often lower than the total of your minimum monthly debt payments. But you are ultimately in control of making the deposits (and you maintain control of the money in the account, too). If you make all of these deposits on time, you’ll see quicker results. If you skip deposits or don’t contribute the recommended amount, your progress will be slower.

• How willing your creditors are to negotiate a settlement offer: Some creditors are more open to negotiating than others. A few creditors aren’t willing to negotiate at all.

In general, most debt settlement customers will receive their first settlement offer within four or five months. (The best debt settlement companies may be able to deliver quicker results, though, which can be critical if it helps motivate you to stay on track with your deposits. You should ask debt relief companies how long it will take for your settlements to start before you sign up.) From there, the company will work one by one on each debt you enrolled until they’re either all settled or your creditors have refused to negotiate. It takes about four years for most people to reach this point.

Average account settlement amount after company fees: 32%

Each creditor is unique when it comes to their willingness to negotiate with the debt settlement company you’ve hired.

In general, the average settlement offer is for about half of what you first owed. After accounting for the debt settlement company’s fees, this number drops to an average savings of 32%.

Not all debts can be settled, though. One out of every four debt settlement customers aren’t able to settle any debts. The explanation for why those customers were unsuccessful isn’t publicly reported. It could be that their creditors refused to come to the table, but it could also be that they didn’t keep up with the monthly savings plan required to build up the lump sums needed to negotiate.

Average debt settlement fee: $762 per debt

By law, debt settlement companies aren’t allowed to charge you any fees until you’ve accepted the terms of any settlement offers they present. That means if you don’t accept any settlements they negotiate, then you won’t owe any money — at least not to the company itself.

Luckily, most people do get and accept more than one settlement offer, though. For each debt, you can expect debt settlement companies to charge between 15% and 25% of the enrolled debt. In 2022, the average fee for each successfully settled debt was $762, which represented 17% of the total settlement amount, according to the Association for Consumer Debt Relief.

You don’t need to worry about coming up with this payment amount all at once, though. Debt settlement companies will include their fees when they’re running calculations to figure out your recommended monthly program deposit amount. They will then take their fees out of your program savings account when you give them the thumbs-up on any settlement offers they propose.

Other costs

Debt settlement companies can only charge you one fee — the settlement fee, after you’ve agreed to any offers — but that doesn’t mean it’s the only fee you’ll pay. You should also factor in these possible expenses:

• Taxes: You may owe income taxes on the forgiven balances.

• Legal fees: Creditors can sue you for non-payment rather than negotiate. If so, you may face legal costs to defend yourself and/or any judgments against you. Some debt relief companies partner with legal firms to help with this and include the cost of legal coverage in their program fees, while others may charge extra for this service. Be sure you understand what support, if any, the company you’re signing up with can provide.

• Credit damage: Debt settlement almost always requires missing payments, and that delinquency can hurt your credit score. While it is a temporary drop, it can make denials more likely when you apply for new credit elsewhere, or you may have to pay higher interest charges or other fees if you are approved.

• Late fees and interest: Creditors continue to charge interest on the debts you’re not paying while you’re in the program, and they may tack on late fees and penalties, too. That causes account balances to grow by an average of $494, or 12% of the original amount, according to a 2021 industry report. This may not add any additional costs if you can reach a successful settlement. But if there are accounts without a settlement, you will have to pay these fees.

• Program savings account fees: You can’t choose the bank where your savings account is held, and most of these partner banks charge a $5 to $10 per month maintenance fee. If you stick with the program for four years, as most people do, that’s between $240 and $480 in extra charges.

Average savings after all debts are included: 18%

The actual costs of debt settlement have many moving parts, so let’s use data from a 2021 industry study to break them down more directly.

The average debt relief client enrolled a total of $27,756 and was able to come to an agreement on $17,032 worth of that debt with their creditors. The typical settlement amount on that sum was $8,365, saving $8,667 in the process, including any interest that accrued on those accounts during the negotiation. That’s a huge savings, but you still have to factor in the costs to put it into perspective.

The debt settlement companies themselves charged a fee of $3,225, on average. It took 36 months to settle this particular batch of debt, which would have meant up to $360 in extra charges from the required savings account.

By the time the dust settled, the average debt settlement client actually saved $5,082, or 30% off of the debt they were able to settle. But since they weren’t able to successfully settle all their debts, the actual overall savings number was smaller — only a 18% reduction on all of the debt that they entered the program with.

This savings rate still does not capture any interest or penalties that may have accumulated on the unsettled debt or any taxes paid on the forgiven amount. A family earning the median income in 2024 paid a tax rate of 12%, which would have increased their tax liability by about $1,000.

How much can you save by signing up for debt settlement?

Here’s a glance at the numbers for an average debt relief client.

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