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Is Debt Resolution The Same As Debt Settlement? How It Works

Most people try to avoid debt whenever possible, but it can happen because of things out of your control.

I’m sure everyone knows what debt is, but they might not know how to resolve it. There are multiple options, and the two most confused ones include debt settlement and resolution. 

Debt resolution and debt settlement aren’t the same, and it is important to understand what each one does.

Debt settlement means you make a deal with the debt collection company to settle on a payment amount, usually a lower amount.

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Debt resolution has to go through an attorney to set up a repayment program.

Debt Resolution vs Debt Settlement: What’s The Difference?

Both of these options have the same objective and reduce the debt you owe while helping you become debt-free.

In this article, I’ll go over the differences between the two programs so that way you can work with your financial advisor and attorney on choosing the right program for you.

Going through debt settlement and debt resolution can have a significant impact on your finances and credit score so always discuss things with your financial planner and attorney before starting either method.

What Is Debt Settlement?

Debt settlement means that you’re settling with the debt collectors, often credit card companies. You can settle debts yourself or use a debt settlement company to help you.

It may be better to use a reputable professional to help settle your debt because credit card issuers can be difficult to handle yourself. You may find it a challenge to get in contact with them, and they could end up harassing you, as well.

How it works is the company negotiates terms with each creditor to reduce how much you owe. You’re often asked to stop paying the creditors and put the money in a savings account.

When you reach the required amount of funds, the company pays the creditors on your behalf. You’ll likely have late fees and interest to pay back.

A debt settlement company usually wants you to miss one payment, at least, or know that you are going to miss one. Sometimes, you are required to be in default on the debt before services can be rendered.

Everyone’s situation is different though so it’s best to work with certified financial professionals rather than take someone’s word for it.

What Is Debt Resolution?

Debt resolution has to go through an attorney. People often refer to it as bankruptcy, but it isn’t the same thing. The attorney can find repayment programs that fit your needs.

You aren’t required to miss a payment, and most attorneys prefer that you pay the minimum amount whenever possible to avoid late fees. 

Your attorney negotiates with every creditor you have to find the lowest payment option. He or she can eliminate fees and interest charges that have built up with time. You can stay current on payments, so the creditors can’t sue you. While you have the attorney, he or she can address any legal matters that occur.

What Fees Are Charged?

The debt settlement company is going to charge you a percentage of the debt which helps to forgive. Sometimes, the fee is a percentage of your monthly payment.

This means you could pay thousands to the settlement company over time. That could be a bad thing because that money could have been used to pay down the debts quicker. 

For example, you owe $40,000 on various credit card debt. This means you could pay the company anywhere from $5,200 to $8,000 in just 12 or 15 months. If you settle the debt for $25,000, the company could charge you up to 35 percent because the agreed-upon amount is over $8,000. You usually have to pay the settlement company before the creditors, as well.

With debt resolution, the attorney might start working for you for free, but they typically use a retainer basis. They bill you additional hours after the retainer has been exhausted. Because they are experienced, they don’t use very many hours. This means you could pay higher fees upfront for debt resolution with an attorney, but you pay less overall.

How Do You Make Payments?

You could be forced to pay a large lump sum on your debt resolution. Most attorneys can get the amount spread out over many payments, but this depends on how well they negotiate. 

Debt settlement payments are directly paid to the company and dispersed to the various creditors from there. You have between 12 and 60 months to pay off your debts this way. Remember, the company gets its fair share of the fees, so less goes to the creditors.

It’s possible to save money and settle it all yourself to avoid the settlement company or attorney fees. Creditors might be hard to deal with and hard to contact in this scenario.

Does Debt Resolution And Debt Settlement Affect My Credit Score?

If you have significant debt, you are probably looking for a way to cut your bill and get out of debt faster. You have various options, but debt resolution or settlement are the top choices. I think there’s a slight advantage for using debt resolution. 

You can continue paying the creditors yourself, and the attorney probably wants you to do so. Late payments go against your credit score.

The attorney is sure to negotiate with the creditors and demand that they report your payments to look better on your score. For example, ‘paid’ looks better than ‘settled.’ 

With both debt settlement and debt resolution, your credit score is going to lower because you’re not paying what you owe in full. Debt settlement may lower your score more because you are hit with non-payment listings and late fees every month until the debt is paid, which could take five years.

Is Debt Settlement Or Debt Repayment Best For Me?

There is no one-size-fits-all answer here. It’s best to bring your financial situation to a certified financial planner who specializes in debt repayment. They’ll be the most knowledgeable on which option is best for your financial situation.

If working with individual creditors you’re already late on, discuss your situation with them and ask if you can make a lump-sum payment for a lower amount.

The credit card issuer might be willing to work with you and avoid the high fees and other issues that come with resolution or settlement.


I generally recommend avoiding debt settlement and repayment options due to their costs and rippling financial effects. Following a debt snowball method keeps all of your debts current and avoids late fees and dings to your credit. But this isn’t feasible for everyone.

If you have significant debt and want to get rid of it, it’s best to meet with an attorney and financial planner to make a game plan.

While many people default to bankruptcy, it isn’t always the best option; debt settlement or debt repayment may be. Many people don’t realize that these two choices aren’t the same.

Debt resolution happens through an attorney and can have lower fees. You’re allowed to continue making payments on the bills. With debt settlement, you can do it alone or use a settlement service, but the fees are higher, and you’re required to stop making credit card payments.

I hope this has helped you understand more about these two services. That way, you can decide which one is best for your needs.

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