How to apply for debt relief: debt settlement qualifications, fees and more

If you're struggling with debt, you're not alone: One in three U.S. consumers is unable to make full payments on their monthly bills, according to a May 2026 survey conducted by digital finance services company Achieve and Money.com.

One way to get back on solid financial footing is with a debt settlement company. For a fee, these services will negotiate with your creditors to reduce the balances on your unsecured debts.

"Our clients are often struggling to make minimum payments," said Brit Simon, chief experience officer at National Debt Relief (NDR), a leading debt settlement company. "They're delinquent on payments already, living paycheck to paycheck, and they're looking for options." 

Debt settlement is a form of debt relief that can help you save thousands of dollars, but not every situation qualifies. Here's what you need to know about who can apply for a debt settlement program.

For a debt settlement company to negotiate with a creditor, the debt must be unsecured. That means it can't be tied to an asset like a home or a car.

"Credit card debt is the bulk of what we do," said Lou Antonelli, chief operating officer at Beyond Finance, which provides debt relief services through Accredited Debt Relief. "We also handle personal loans, lines of credit and medical bills that have ended up in collections."

Debt settlement companies typically ask clients to stop making payments before they begin negotiations. With a secured debt, like a mortgage or auto loan, the lender has collateral they can seize if you stop paying. That gives them far less incentive to negotiate a reduced payoff amount.

With unsecured debts, the main recourse is to pursue collections or legal action. But those are costly and uncertain, so a creditor is more likely to accept less than the full balance owed.

Other types of debts that are not eligible for debt settlement plans include federal student loans and most tax obligations. 

Debt relief companies require clients to have a minimum debt amount to be enrolled in a program, usually $7,500 or $10,000.

Since their fee is a portion of your balance, it needs to be large enough to justify the cost of months of negotiations, compliance work and customer support that the company contributes. A smaller balance also won't offer a creditor much incentive to write off a share of what's owed.

National Debt Relief requires clients to owe at least $7,500, according to Simon, "but [our clients'] average debt load is often significantly higher."

"It's usually someone who has six to eight types of credit cards, loans, medical bills, and other accounts," he said. "It's not just one." 

Credit card companies and other creditors usually accept a settlement only as a last resort, so you may have to demonstrate you can't afford your current payments. Examples of financial hardship include:

• Job loss
• Medical emergency
• Divorce or separation
• Disability, illness or death

Financial hardship requirements vary, so check with the settlement company. In many cases, Antonelli said, it's the loss of a second income in a two-income household.

"They're no longer able to keep up," he added. "They were making do with two incomes, but in the new reality, they can't cover their expenses and they're living on credit."

While you need to demonstrate financial hardship, you also need a reliable income so you can make monthly deposits toward your settlements and fees.

During an initial consultation, Antonelli said, "We look at what they have coming in, what they have going out and the minimum payments they're currently being asked to make."

Based on that, an agent will determine an affordable monthly payment for your program.

If you don't have enough cash flow for that, a settlement is off the table and you'll need to look at other options, like bankruptcy.

Debt settlement companies are highly regulated by state agencies, which govern how much they can charge clients. Because of these regulations, a company may decide it's not financially feasible to be licensed in a certain state.

NDR, for example, doesn't operate in Connecticut, Oregon, Vermont, West Virginia and Wisconsin.

In addition, a number of states prohibit or severely limit for-profit debt settlement agencies.

In addition to what you have to pay your creditors, there are a number of expenses associated with debt settlement.

Settlement fees

Debt settlement companies charge a settlement fee for successfully negotiating with your creditors. The fee is generally equal to 15% to 25% of the total balance you enrolled, largely depending on your state’s fee cap.

If you come with $25,000 in credit card debt and get all your balances successfully settled, your fee would likely be between $3,750 and $6,250.  

Account fees

If you enroll in debt settlement, you'll typically be asked to make monthly deposits into a dedicated savings account, which is used to pay both the settlement fees and your creditors. The setup fee for this account may be anywhere from $10 to $50, while monthly maintenance fees usually range from $5 to $10.

There may be other fees, including a $20-$25 settlement administration fee each time you resolve a specific account, and a cancellation fee if you withdraw from the program.

Not all debt settlement companies are transparent about their fees, so ask before signing up. 

Indirect costs

There are also indirect costs associated with debt settlement. Most companies ask you to stop making payments and interest and late fees could continue to accrue while negotiations are underway. (Some creditors may decide not to settle.)

In addition, the IRS typically considers the debt forgiven by your creditors as taxable income, which could impact your refund or tax bracket.

Most services set their settlement fees at the maximum allowed by state regulators, so there's not much point in shopping for a better settlement rate. But there are several factors to consider when choosing a debt settlement company.

Verify credentials: A reputable debt settlement company should be accredited by nonprofit industry groups like the International Association of Professional Debt Arbitrators and the Association for Consumer Debt Relief. You may also want to look at how many consumers the company has helped, the average debt balance it has resolved for clients, and whether it has faced any lawsuits or regulatory actions.

Analyze the fee structure: While your settlement fee is likely to be 15% to 25% of your enrolled total, some companies add additional charges — like a monthly maintenance fee for your dedicated account or a settlement administration fee each time you resolve a specific account. Make sure to get an estimate before enrolling and avoid any settlement company that asks you to pay up front.

Look for additional financial services: Debt settlement isn't the only way to resolve financial issues. Achieve, an affiliate of Freedom Debt Relief, offers debt consolidation loans and home equity lines of credit to help pay down debt. Beyond Finance offers free financial counseling to clients, according to Antonelli, including a Financial Wellness Reset Program intended to change their relationship with money.

Customer service: Look at a company's Better Business Bureau grade and ratings on TrustPilot and other third-party sites. Consider whether a company's customer service hours and the availability of a client portal or mobile app is important to you.

Debt settlement is one form of debt relief, but there are others. You may not qualify for all of them, but a reputable debt settlement company should discuss your options during your free consultation.

0% APR balance transfer cards: If you're still able to make regular payments, consider transferring multiple high-interest balances to a single card with an introductory 0% interest rate. That will give you some breathing room (up to 21 months) to pay off the principal.

Debt consolidation: A debt consolidation loan replaces multiple bills with a single monthly payment, ideally with lower interest, smaller monthly payments or both. Some lenders will even distribute the funds directly to your creditors.

Credit counseling: Credit counseling services provide financial education and help consumers structure an effective payment plan to get out of debt. They don't negotiate with creditors to reduce balances but they may be able to lower your APR, waive fees or get your payments spread out.

Bankruptcy: If your bills are unmanageable and you're facing serious financial hardship, filing for bankruptcy may enable you to discharge eligible debts. Bankruptcy is a complicated legal process, however, and legal representation is often required.

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every debt relief article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of debt relief products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.

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