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Debt Settlement Companies | How to Find Them

Debt Settlement Companies | How to Find Them

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Daniel Cohen
UpdatedJun 20, 2024
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    5 min read
Key Takeaways:
  • The best debt settlement companies strictly follow the FTC rules.
  • AFCC members follow even stricter guidelines than the FTC requires.
  • Avoid any firm that avoids disclosing the negatives of its approach.

Save Money by Hiring the Best Debt Settlement Company

If you are trying to find a debt settlement company to work with, your task has recently become simpler. In late 2010, the Federal Trade Commission (FTC) released a set of rules to govern the debt settlement industry, making it easy for you to weed out the bad players.

The FTC issued the rules to address the serious problem of some debt settlement firms taking fees from customers and doing nothing to help solve their debt problems. To protect you from these predatory firms, strict rules on charging advance fees were put in place. The FTC rules state that a debt settlement firm that engages in telemarketing cannot collect any fees until:

  1. "The debt relief service successfully renegotiates, settles, reduces, or otherwise changes the terms of at least one of the consumer's debts;
  2. "There is a written settlement agreement, debt management plan, or other agreement between the consumer and the creditor, and the consumer has agreed to it; and
  3. "The consumer has made at least one payment to the creditor as a result of the agreement negotiated by the debt relief provider."

FTC rules also strictly govern the advertising claims that settlement firms make. Firms can only quote success rates in their ads if they can back it up with evidence. Before you hire a debt settlement company, it has to disclose to you: how long it should take you to see results, what your program will cost, and the negative consequences that may result.

Quick tip

Find a debt settlement provider that complies with all the FTC requirements by speaking with one of's pre-screened debt providers.

How FTC Rules Affect You?

Some firms can legally charge you up-front fees, such as law firms or firms that don't telemarket. Others firms try to skirt the FTC ruling, improperly charging their clients' up-front fees, when it is against the law.

However, if you are a smart shopper, you can hire one of the best debt settlement companies and not pay them a penny until after you see results and one of your accounts is settled. This is a huge benefit. It comes down to a very simple question: Why would you hire a company that will charge you up-front when you can find one that won't?

"Approximately 75% of the debt settlement industry has shaken out, and the shakeout is still happening, as some of the legal 'loophole' models are facing regulatory issues," according to Andrew Housser, an executive board member of the American Fair Credit Council (AFCC), the leading consumer credit advocacy industry trade group.

How to Find "No Up-Front Fee" Debt Settlement

The best and easiest way to find a debt settlement firm that doesn't charge fees in advance is to choose one that is an accredited member of the AFCC. The AFCC will not allow membership to any firm that charges an advance fee, regardless of whether or not the FTC allows the firm to do so.

USOBA (United States Organization for Bankruptcy Alternatives) is another debt settlement organization. Unlike the AFCC, USOBA accepts members that charge up-front fees. This is one reason that does not recommend hiring USOBA members.

AFCC Code of Conduct

The AFCC enforces the strictest code of conduct in the industry. "Many of the companies in our industry that choose not to join the AFCC have said the code of conduct is too strict," Housser said. "They believe the industry should be more flexible considering exemptions to the FTC Rule. The AFCC simply will not accept that."

Some AFCC rules are even stricter than FTC requirements. In addition to compliance with FTC rules, the AFCC code requires its members to:

  • Be forthright and truthful in all representations
  • Work solely for their clients' interests, not accepting any compensation or donations from creditors
  • Make only accurate representations of their services
  • Use estimates about program costs and projected client savings that are based on historical data that can be substantiated
  • Fully disclose all fees that will be charged and when the firm will earn them. NO hidden fees.
  • Disclose the pros and cons of the debt settlement process

Debt Settlement Negatives

Any of the best debt settlement companies are going to up-front with you about the negatives of their program. Never hire a debt settlement company that is unwilling to discuss the downsides of debt settlement, including:

  • Credit Score Damage: Your credit score will take a heavy hit in a debt settlement program, even if it saves you a lot of money.
  • Settlements are not Guaranteed: Creditors can choose not to settle. They will only settle, if they determine it is in their best interests.
  • Collection Efforts: Creditors can pursue collection efforts against you, including lawsuits that could result in wage garnishments or bank levies. Only a very small percentage of all accounts enrolled in debt settlement end up in a lawsuit, but no firm should tell you it couldn't happen.
  • Tax Implications: Forgiven debt can result in a tax obligation. You may not have to pay taxes on the forgiven debt, if you are eligible to use the IRS' Form 982. Speak with a tax professional.

Other Characteristics of the Best Debt Settlement Firms

Here are some additional, basic tips on finding the right settlement firm to work for you. Look for a firm that:

  • Trains its Debt Counselors Thoroughly: Look for a firm that requires IAPDA (International Association of Professional Debt Arbitrators) accreditation. The IAPDA tests individual counselors and certifies those that pass.
  • Doesn't Apply High-Pressure Sales: Don't hire a firm should based on their scare tactics.
  • Answers Questions: You're entitled to ask as many questions as you feel necessary. Don't work with a firm that assigns you an impatient debt counselor.
  • Has a Strong Track Record: Many debt settlement firms closed shop, rather than convert to the "no advance fee" rules. Others try to skirt the rules. Make sure you work with a firm with an established, long-term record of successfully helping customers and following all the FTC rules.

Work with an AFCC-member debt settlement firm to get the best results.

Debt statistics

If you are struggling with debt, you are not alone. According to the NY Federal Reserve total household debt as of Quarter Q1 2024 was $17.69 trillion. Student loan debt was $1.60 trillion and credit card debt was $1.12 trillion.

According to data gathered by from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 8% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.

The amount of debt and debt in collections vary by state. For example, in Kansas, 26% have any kind of debt in collections and the median debt in collections is $1652. Medical debt is common and 17% have that in collections. The median medical debt in collections is $849.

While many households can comfortably pay off their debt, it is clear that many people are struggling with debt. Make sure that you analyze your situation and find the best debt payoff solutions to match your situation.