If you’re struggling to keep up with debt repayment, there are many strategies you can use to pay off your debts. If you’re interested in a guided program to become debt-free, debt resolution and debt settlement are two options.

Debt resolution includes several different types of plans that help you pay off your debts, while debt settlement involves negotiating with your creditors to settle your account for less than you owe. In this guide, we’ll talk about debt resolution vs. debt settlement and the key differences between the two.

What Is Debt Resolution?

Debt resolution is an umbrella term that refers to any method to resolve your debts. The term is often used to describe debt settlement. However, debt resolution may include other debt relief methods, such as debt consolidation, debt management programs, and credit counseling.

Any strategy or method that is implemented with the goal of resolving your debts through a settlement, reduction in interest rate, or streamlining your payments can be debt resolution.

Pros of Debt Resolution

  • Debt resolution may allow you to save a considerable amount of money by getting a lower interest rate.
  • It may allow you to settle your account for less than you owe.
  • You may be able to avoid bankruptcy in some cases through the successful resolution of your debts.
  • You don’t risk losing your assets unless there’s a court judgment.

Cons of Debt Resolution

  • Some debt resolution programs may take up to five years or more to complete.
  • You may need a good credit score to qualify for some debt resolution programs, such as debt consolidation.
  • You may not get relief from collection calls.
  • The lender may still take legal action.
  • Any forgiven debt is taxable income, so you’ll owe taxes for that amount.

What Is Debt Settlement?

Debt settlement is a process that involves negotiating with your lenders to settle your account for less than you owe. If you have a considerable amount of unsecured debt, are behind on your payments, and are unable to pay off your debt in full, debt settlement may be a good option to consider.

You can negotiate a debt settlement on your own or enroll in a debt settlement program. Once you have saved up enough money, you can make a lump sum payment to settle and close your account.

“The key thing to remember is that there are many debt relief programs available, and you need to find the one that fits your needs the best,” explains Teresa Dodson, a financial expert and the founder of Greenbacks Consulting. “Take an honest look at your budget, debts, and income to determine what’s right for you,” she shares. 

Pros of Debt Settlement

  • You may be able to save as much as 50% of your debts through debt settlement services.
  • You may be able to get out of debt faster since you don’t have to repay the full amount.
  • You may be able to avoid bankruptcy.
  • You can settle all types of unsecured debts through a settlement.  

Cons of Debt Settlement

  • Lenders and credit card companies are not obligated to accept your settlement offer.
  • The lender may continue debt collection efforts or decide to sue you, which can result in wage garnishment.
  • Debt settlement can lower your credit score.
  • You’ll need to pay taxes on the forgiven debt.

Debt Resolution Vs. Debt Settlement: Key Differences

When comparing debt resolution vs. debt settlement, it’s important to understand their key differences, like the costs involved, the impact on credit score, and the payments you may need to make.


Debt resolution includes a number of different types of programs, each with its own costs and fees. For example, nonprofit credit counseling services are usually very affordable. Education and counseling fees are usually $50.

The average debt management plan setup fee is $33, while the monthly fee is $24/month. Fees may vary based on state laws and the counseling agency. If you’re getting a debt consolidation loan from a bank or credit union, there may be fees, such as origination fees and prepayment penalties.

If you’re considering debt settlement, you’ll typically pay 25% of the total debt enrolled as fees to a debt settlement company. It’s important to remember that a settlement company can only charge a fee after your account is settled, so there’s no upfront cost.  


Payment options work differently for each type of debt resolution program. For example, with a debt management plan, you’ll be required to make a single payment to the credit counseling agency each month. This payment will then be distributed to different lenders. If you have taken out a debt consolidation loan, you’ll again have a single payment each month instead of monthly payments.

With a balance transfer credit card, you’ll need to make a payment each month or more often. Ideally, if you want to avoid interest charges, you should try to clear off your entire balance before the end of the 0% APR introductory period.

If you’re working with a debt settlement lawyer or company, you’ll need to stop making payments to your lenders each month. Instead, you’ll make payments in a separate bank account to start saving for a lump sum payment. Once you’ve saved enough money, the company will use these funds to settle your account.  

Credit Score Impact

When comparing debt resolution vs. debt settlement, a key factor to consider is how each option impacts your credit score. Debt resolution may have a negative impact on your credit score, depending on what your credit score is and the type of program you choose.

Credit counseling and debt management plans usually have no or minimal impact on credit. However, closing credit cards as part of the plan may negatively impact your credit score.

Debt settlement will also lower your score and stay on your credit report for seven years. However, your credit score may already be low due to late payments, missed payments, and maxed-out credit cards. Regardless of the type of debt relief you choose, it’s possible to rebuild your credit with on-time payments and responsible use of credit.

Choose the Right Option for Your Financial Situation

Choosing between debt resolution vs. debt settlement will depend on your specific financial situation. Consider the types of debt you have, the total amount you owe, your credit score, and your income stability to determine the right option for you.

For example, if you have a good credit score but multiple high-interest credit cards, medical bills, and personal loans, getting a new loan to consolidate debts may be a good option. If you have bad credit due to maxed-out credit cards, missed payments, and over $10,000 in unsecured debt, such as credit card debt, debt settlement may be the better option.

Understand the differences between each type of debt relief program and how it may impact your financial future. If you’re not sure about the right option, speak to a professional or a credit counselor.