Government agencies and consumer rights advocates have been speaking out against debt settlement for years and obviously with good reason. According to the National Association of Consumer Bankruptcy Attorneys (NACBA), only one in 10 consumers actually end up debt-free after paying for debt settlement services.

Debt settlement is a process where your creditors agree to accept a lower payment on your debt than what you actually owe. Once you’ve made the settlement payment, the creditor writes off the debt and calls it even. You can negotiate this yourself, but many consumers aren’t aware they have the power or some may prefer to hire a company who have promised certain results.

While television and radio advertisements for debt settlement services sound attractive, the actual process isn’t a walk in the park. It can take months or years to finally settle a debt. Debt settlement companies typically advise consumers to stop paying their accounts and instead send your payments to the settlement company. But, payments aren’t being redirected to the creditors. Instead, the payments are placed into a settlement to accumulate until there’s enough to offer a settlement to your creditors. Many consumers don’t fully understand this process and may quit the debt settlement program before they can see results.

Another reason so many people may quit debt settlement programs: the programs don’t necessarily provide relief from creditor and collector calls. Since you must become delinquent for debt settlement to work correctly, creditors will call to collect payment. Any cease communication letters or redirects to your settlement company may cause the creditor to file a lawsuit against you.

Consumers who enroll in debt settlement programs complain that the settlement companies sometimes ignore offers from creditors, charge high fees, and settlement only a small amount of debts. Not only that, fees and interest is often added to debts even after they’ve been enrolled in the settlement program. So, consumers who quit the program often end up with more debt than when they started.

There’s legislation to keep debt settlement companies from taking advantage of consumers, but the law primarily applies to for-profit companies who sell debt settlement services over the phone. These companies cannot (among other things) charge advance fees and they can’t misrepresent their services. Under this law, these companies must maintain a dedicated account for consumer funds that have been paid toward a settlement, must say how long it could take to see results, and must reveal any negative consequences that come result from debt settlement. Other debt settlement companies don't have to follow these rules.

You don’t need a company to settle your debts. If you’re delinquent by 90 days or more, your creditors may automatically make a settlement offer. And, they may even be willing to negotiate lower. You just have to ask. The key to a successful settlement is having the money ready to make a settlement offer once the creditor gives you an agreement writing.

There’s no guarantee your creditor will accept a settlement whether you use a debt settlement company or do it yourself. If you purposely fall behind on your payments with the intention of settling, you may be shocked to find your creditor is unwilling to negotiate and requires you to pay the full debt. Meanwhile, your credit will have taken a hit and you may have trouble borrowing money.

Nonprofit credit counseling will typically be a far less risky way of repaying your debt with help. You may not necessarily save thousands of dollars on your debt, but you can pay your debts safely and within your budget. Even if you don’t enroll in a debt management plan or see it to completion, you can still receive financial lessons that will help you pay off debt on your own.

Sources: National Association of Consumer Bankruptcy Attorneys, FTC.gov