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  • Writer's pictureSubhan Tariq, Esq

Debt Settlement

Debt settlement is a process where a debtor and creditor negotiate and agree on a reduced payoff amount with the goal of resolving the outstanding debt. This is typically done when the debtor cannot repay the full amount owed and wants to avoid more severe consequences, such as bankruptcy or wage garnishment.

The American Fair Credit Council (AFCC) is a trade association representing the debt settlement industry. It advocates for ethical and fair practices by debt settlement companies and promotes using debt settlement as a legitimate debt resolution option for consumers. The AFCC supports debt settlement as a way for consumers to become debt-free but also encourages the use of transparent, honest, and effective debt settlement services. The AFCC has standards and guidelines for its member companies to ensure that they provide quality services to consumers and act in their best interests.

Consumers can settle their debts or hire a debt settlement firm to do it for them. In the latter case, you’ll pay the firm a fee calculated as a percentage of your enrolled debt. Enrolled debt is the amount of debt you have when you enter the program. By law, the company can’t charge this fee until it has settled your debt. Debt settlement may also entail tax costs. The Internal Revenue Service (IRS) considers forgiven debt to be taxable income. If, however, you can demonstrate to the IRS that you are insolvent, you will not have to pay tax on your discharged debt. The IRS will consider you to be insolvent if your total liabilities exceed your total assets.

Debt settlement strategies can vary depending on the individual's financial situation, but here are some common methods:

  1. Negotiating with creditors: This involves contacting creditors directly and negotiating a reduced payoff amount.

  2. Working with a debt settlement company: A debt settlement company can negotiate on behalf of the consumer and may have more leverage in achieving a lower payoff amount.

  3. Creating a debt repayment plan: This involves creating a budget and allocating a portion of income towards paying off debt, either on your own or with the help of a financial advisor.

  4. Applying for hardship programs: Some creditors offer hardship programs for consumers who are facing financial difficulties and are unable to repay their debt in full.

  5. Using debt consolidation loans: Debt consolidation loans can be used to pay off multiple debts and simplify repayment into a single monthly payment.

  6. Seeking debt relief through bankruptcy: Bankruptcy can provide relief from unsecured debt, such as credit card or medical debt, but it can have long-lasting negative effects on the consumer's credit score.

There is no standard percentage that is considered a settlement in the United States. The percentage of a settled debt depends on several factors, such as the amount of debt owed, the creditor's willingness to settle, and the individual's ability to pay. Debt settlement negotiations can result in settlements for as low as 20-50% of the original debt amount, or sometimes even lower. However, the actual amount settled will vary from case to case and depend on the specific circumstances of the debt and the negotiations with the creditor.

It is important to note that debt settlement can have a negative impact on credit scores and may not be suitable for everyone. It is important to consult a financial professional before pursuing debt settlement.

For more info, email us at, or submit a case review request.



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