Debt Settlement vs. Credit Counseling

Published April 2021

Debt settlement and credit counseling are radically different approaches to eliminating debt. Despite some ambivalence that may exist in this respect, the two debt resolution methods have little in common except for their goal, which is to give you freedom from debt.

Key Points: 

  • Through debt settlement, you pay back less than what you owe.
  • Unlike credit counseling, debt settlement does not entail any upfront fees.
  • Debt settlement can resolve other types of unsecured debts, not just credit card debt.

Here is a quick look at debt settlement vs. credit counseling. 


Debt Settlement

Credit Counseling


Saves money on your balance and on the interest you will not have to pay

Allows you to pay off one account at a time. If you discontinue the program, your completed discharges remain valid

Does not require upfront fees

Works with most types of unsecured debts

Gives you total control over the escrow account

Offers good statistical odds and a proven track record

A Credit Counseling Plan is kind to your credit score

Creditors pre-approve credit counseling plans, meaning it is unlikely that they will sue you as you work through the plan

Credit counseling plans allow you to keep a credit card open

Credit counseling consolidates your debts and lowers your interest rates

Credit counseling plans allow you to withdraw from the program at any time


Creditors do not pre-approve Debt Settlement Programs, so it is possible that friction may result

Debt settlement impacts your credit score negatively for a time

Savings resulting from forgiven debt may incur tax obligations

Withdrawing from a credit counseling plan will restart collection efforts on all of your debts

You can only discharge credit card debt through credit counseling. No other unsecured debts qualify

A credit counseling plan requires you to pay an upfront fee

 While enrolled in a credit counseling plan, you cannot open a credit card account


Which of the two debt relief methods suits your needs depends on your unique financial situation. 

Debt Settlement: The Most Cost-effective Way of Resolving Debt 

If you feel that you cannot handle your spiraling debt without outside help, getting in touch with a debt settlement company may be your best option. Contact a ClearOne Certified Debt Specialist at 866-481-1597 and get a personalized debt relief plan today. 

Once you commit to a debt settlement plan (DSP), you need to fund an escrow account and your debt settlement company can then make payments to your creditors from that account as they negotiate a settlement with each of them. Because they are already experiencing financial hardship, most of our clients cannot continue to pay their creditors and fund an escrow account, so they choose to stop paying their creditors. Creditors are also less likely to negotiate if accounts are current and there is no evidence of hardship.

Creditors will usually settle for less than what you owe because their priority is to recover at least some of your debts. There are no upfront costs involved in the settlement process for you. 

As a DSP client, you will have to approve any settlement deal your firm secures on your behalf. 

According to a 2017 American Fair Credit Council Report

  • 61% of those who enroll in a DSP settle at least one account.
  • 98% of settlement deals produce savings exceeding the DSP fees.
  • 50% of DSP clients settle at least two accounts.
  • Of the clients who stick to the DSP for at least six months, 50%+  complete the program and eliminate their debts. 

A DSP is likely a good choice for you if: 

  • Your accounts are already in delinquency.
  • You have unsecured debts other than credit card debt.
  • You want to save money while getting rid of your debt. 

Debt settlement document

Credit Counseling: Pay Back 100 Percent of Your Debts 

Unlike debt settlement, credit counseling does not save you money in the form of forgiven debt.

It does, however, consolidate your debts into a single monthly payment. It can also save you money through lower interest rates. 

Credit counseling may be a suitable approach to debt resolution when: 

  • You only have credit card debt.
  • Debt consolidation is not an option for you because your credit score does not allow you to get a loan on decent terms.
  • You cannot get a good personal loan, and you cannot get a balance transfer credit card.
  • You do not think that you are disciplined enough to stick to a strict debt repayment plan without outside help. 

Debt Settlement vs Credit Counseling: The Bottom Line 

If your biggest concern is lessening the impact on your credit score, credit counseling may be the better option. It has a negligible effect on your credit score,  and it gives your debt repayment efforts structure and direction. 

However, if you are looking for a way to save the most money while eliminating your debt, debt settlement is likely the right choice. It allows you to save money directly through the settlement and the interest you are no longer paying.. 

If you want to know exactly how much you can save through debt settlement, get a free savings estimate today.



Topics: Debt Consolidation