If you’re reading this, chances are you’re feeling the weight of mounting debt on your shoulders. You’re not alone. In just one-year, non-housing consumer debt skyrocketed from $2.12 trillion at the start of 2024 to over $5 trillion by the end of the fourth quarter.1 That’s an explosive growth that’s left millions of Americans staring down repayment obligations that feel downright overwhelming. In moments like these, it’s tempting to look for a quick fix—like turning to a debt settlement company that promises to slash your debts and make creditors back off.
But before you make that call, let’s chat about why debt settlement might not be the lifeline it seems, and how restructuring your debt through steady, manageable payments could be the smarter way to regain control without damaging your credit and future borrowing options.
What Exactly Is Debt Settlement, and Why Does It Sound So Appealing?
Debt settlement companies, sometimes call themselves debt management or adjustment services, and market themselves as your advocate in tough times.
They claim they can negotiate with creditors to settle your debts for “pennies on the dollar”—often promising reductions of up to 50% or more.
The pitch is simple: Stop paying your bills, funnel money into a special account they help set up and let them handle the haggling. They even boast about preventing collection actions or halting ones already in motion. With aggressive ads flooding the airwaves amid this debt boom, it’s no wonder these services seem like a beacon of hope for people buried under credit card bills, medical expenses, or other unsecured debts.
But here’s where the conversation gets real: These companies aren’t magicians, and their promises often come with a hefty dose of fine print. According to insights from regulatory bodies and industry analyses, like those from the American Fair Credit Council (now rebranded as the American Association for Debt Resolution), they position themselves as consumer-friendly, educating people on debt relief while holding members to “high standards.” Yet, the reality for many users doesn’t match the hype.
The Major Pitfalls of Debt Settlement That Could Leave You Worse Off
Let’s break this down—debt settlement isn’t just ineffective for a lot of people; it can actively make your financial situation more stressful and burdensome. Here are some key risks to consider:
- 1) The “Stop Paying” Trap and Credit Score Devastation: One of the first things these companies often tell you, especially if you’re still current on your payments, is to stop paying your bills altogether. This pushes you into delinquency, which debt settlement companies use as leverage for negotiations. But the fallout? Your credit score takes a massive hit—damage that can last for years under the Fair Credit Reporting Act. Late payments, collections, and potential judgments stick around, making it harder to rent an apartment, get a job, or secure future loans. If you were managing okay before, this deliberate delinquency could turn a manageable problem into a long-term crisis.
- 2) High Fees and Low Success Rates: Debt settlement isn’t free. Companies charge significant upfront or ongoing fees, often regardless of whether they successfully settle your debts. A 2010 Government Accountability Office study found success rates as low as 10% in some states, far below the 100% claims some reps make. More recent Consumer Financial Protection Bureau (CFPB) reports highlight cases where consumers ended up deeper in debt after fees piled up, with no relief in sight. And remember, creditors aren’t obligated to negotiate with these companies—they can (and often do) pursue judgments or accelerate collections instead.
- 3) Misleading Claims and Hidden Conflicts: Many firms tout “no fees for rejected offers” or “easy cancellation,” but investigations reveal deceptive practices. For instance, some promise lawyer-led negotiations but use non-legal staff, as seen in a 2024 lawsuit against Strategic Financial Solutions by the CFPB and New York Attorney General. Others bundle in lending services, offering consolidation loans through affiliates that add new debt on top of your existing burden—essentially swapping one problem for another. Critics call this “debt swapping,” where any “savings” from settlements get wiped out by new interest and fees.
- 4) Increased Stress from Collections and Legal Actions: While you’re in the program, creditors might ramp up calls, letters, or even lawsuits. Debt settlement companies can’t always stop this, and you could face wage garnishment or court judgments. Plus, if you drop out (which many do due to the low success rates), you’re left with accumulated interest, penalties, and a wrecked credit profile—adding undue emotional and financial strain.
In short, what starts as a promise of relief can spiral into more debt, prolonged uncertainty, and barriers to rebuilding your life. The industry argues it helps avoid bankruptcy and keeps people as “productive, tax-paying community members,” but evidence shows it often leaves folks in a tougher spot.
A Better Alternative: Restructuring Your Debt for Stability and Credit Preservation
Instead of gambling on settlements, consider restructuring your debt—essentially reorganizing what you owe into a plan with steady, regular payments that fit your budget and come with a clear payoff date. This approach focuses on working directly with your creditors or exploring options like personal loans to consolidate debts, without the drama of delinquency.
- Direct Negotiations with Creditors: Many lenders are willing to discuss repayment plans, hardship programs, or adjusted terms—free of charge. This keeps lines of communication open and avoids third-party interference that could sour relationships.
- Using a Personal Loan for Consolidation: Securing a personal loan can be a practical step. It allows you to pay off multiple debts at once, replacing them with one fixed monthly payment at a potentially lower interest rate. The key benefits? Predictable payments that align with your income, a defined end date to being debt-free, and the chance to maintain or even improve your credit by making on-time payments. This method sidesteps the credit-damaging “stop paying” strategy and reduces the overall stress of juggling multiple bills.
- Restructure for the Future: By restructuring, you’re not just managing debt—you’re protecting your ability to borrow in the future, whether for a car, home, or emergency. It emphasizes responsibility and long-term health over quick fixes, helping you avoid the pitfalls that lead to more burden.
Finally; Make an Informed Choice for Your Financial Well-Being
Facing rising personal debt is scary, but rushing into the wrong solution, like debt settlement, could compound the risks— from credit damage and high fees to failed negotiations and added stress.
Restructuring your debt, on the other hand, offers a path to stability: preserving your credit score, ensuring manageable payments, and setting you up for a brighter financial future.
Take a moment to assess your situation fully. Calculate your debts, review your budget, and explore restructuring options that prioritize your peace of mind. Remember, the goal isn’t just getting out of debt—it’s doing so in a way that doesn’t create new hurdles down the road. If you’re ready to take control, start by understanding your options.
If you need help understanding the debt you have, and how restructuring it might work, your local Time Financing Service® branch manager is available to meet with you and review your situation. Together you’ll be able to explore what options you have and how to move toward a solution that works.
You’ve got this—let’s turn that overwhelming feeling into actionable steps toward relief.
*This article is provided to be informative and is not to be considered financial advice about your unique situation.
1 Federal Reserve Bank of New York, Household Debt and Credit Report, (February, 2025).