Is a Debt Resolution Different From a Debt Settlement?

Don't get caught in the debt trap.
i Jupiterimages/Comstock/Getty Images

Yes, there is a difference between debt resolution and debt settlement but the objectives of both are the same: to reduce your debt to an amount you can pay off and become debt free.

Debt resolution requires the services of an attorney. Debt settlement does not. Debt settlement companies prefer that the debtor has missed or will miss payments. Debt resolution does not require missed payments. The terms have become somewhat interchangeable. Debt resolution or settlement, is a serious step that will affect both you and your partner. While one of you may have a stellar score, the other person seeking debt settlement can be affected for the next seven years. If you're considering buying a home ointly, the credit scores of you and your mate or significant other will be considered.

Debt Settlement Companies

You can settle the debts yourself or hire a debt settlement company. These companies negotiate with each creditor to reduce the amount owed. The settlement company will likely tell you not to pay your creditors but put that money in a trust account. When the funds reach the total needed to settle the debts, the creditors are paid. Until that happens, interest and late fees build up. While the debt settlement company may have attorneys on staff, they work for the company, not for you.

Debt Resolution Attorneys

The debt resolution company attorney works with you one on one to establish a debt repayment program that fits you. He then negotiates with each creditor to accept a lower payment. The attorney may also be able to eliminate interest charges and other fees. Debt resolution can proceed while you're staying current with payments. This means the creditors don't have the motivation to sue. If any legal matters arise pertaining to the debt, the attorney will address them.


Debt settlement companies charge either a percentage of the debt that is forgiven or a percentage of the monthly payment each month. That could mean you're paying thousands of dollars to the settlement company that could have gone to pay down your debt faster. For example, if you owe $40,000 you may have to pay the settlement company from $5,200 to $8,000 in the first 12 to 15 months. Or if the debt is settled for a total of payment of $25,000 the debt settlement company will charge up to 35 percent of the settled amount or more than $8,000. The settlement company gets paid first before any monies go to the creditors.

Attorneys work on a retainer basis to start, with additional hours billed when the retainer is exhausted. Since attorneys who provide debt resolution services are experienced they may not have to expend as many hours working with your creditors. You may have to pay more upfront but less in total.


Debt resolution payments might be in lump sum or spread over a time period, based on what the attorney has negotiated.

Debt settlement payments paid through a debt settlement company are usually paid over a longer time period, from 12 to 60 months.

If you negotiate the debt settlement yourself you avoid paying both the attorney fees and the debt settlement service's fees. However, creditors may not take you as seriously as they would an attorney.

Effect on Credit Scores

If you're seeking a solution to your debt problems and are considering choosing between debt resolution and debt settlement there may be a slight advantage to debt resolution. You don't have to stop paying your creditors. Late payments affect your credit scores. Your attorney may be able to convince your creditors to report the payment of the debt in a way that has less effect on your score, such as "paid" rather than "settled." Either way your score will take a dive because whether it's resolution or settlement, you're not paying the full amount of what you owe.

the nest