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Published: Jul 03, 2024 5 min read

Getting out of debt can be overwhelming, and the multiple options to do so can make it even more daunting.

Choosing between debt settlement, credit repair and credit counseling depends on your specific financial situation as well as your long-term financial goals. Also, it's important to note that the option you choose can have a deep impact on your credit score for several years.

Read on to learn what these services involve and which one is the best option for you.

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What is debt settlement?

Debt settlement, or debt relief, is a financial strategy where you negotiate with creditors to pay off your outstanding balances for less than what you owe. It typically involves hiring a debt settlement company to handle the negotiations on your behalf.

During the negotiations, debt settlement companies ask you to stop making monthly payments to creditors and instead put money in an escrow account the company manages. The account funds are to be used to pay creditors if they accept a lower payout and cover the company's service costs.

Debt settlement is often used by individuals who find they’re unable to keep up with their bills. It can help reduce your overall debt and, in some cases, stop your accounts from being sent to collections. However, debt settlement will negatively impact your credit score, and it can involve high fees and tax implications. Also, the process isn’t guaranteed since many creditors are not willing to negotiate with debt settlement companies. Make sure to read our full article on What is Debt Settlement? for more information.

What is credit repair?

Credit repair involves checking your credit report for possible errors or outdated information, and disputing them with the major credit bureaus (Experian, Equifax and Transunion). You can do this process yourself for free or hire a credit repair company, which will review your credit history and contact the bureaus on your behalf.

Credit repair can improve your credit score, increasing your chances of being approved for some of the best credit cards and loans and reducing your interest rates.

However, note that credit repair only works if your credit report has inaccurate or obsolete information. Neither you, nor a credit repair company, will be able to have accurate information removed from your credit.

What is credit counseling?

Credit counseling is a service offered by non-profit credit counseling agencies to help individuals manage debt and improve their financial standing.

Credit counseling agencies provide several services, including budgeting assistance, homeownership workshops, debt management plans and more. Their services are usually free, but some (like debt management plans) may charge a small monthly or setup fee.

The process usually begins with a thorough assessment of your financial situation, including your income, expenses and debts. A credit counselor then works with you to create a plan to improve your credit and reach your long-term financial goals.

Key Differences Between Debt Settlement, Credit Repair and Credit Counseling

Debt settlement

Credit repair

Credit counseling

What it involves

Negotiating with lenders to pay less than the total you owe

Checking your credit report for mistakes and disputing them with the credit bureaus

Provides debt and money management advice

Who offers it

Debt settlement companies

Credit repair companies (but you can do it yourself)

Credit counseling agencies


Up to 25% of the debt the company helps you settle

Between $50 to $200 per month (depending on the service plan you choose)

Non-profit, but may charge a small, affordable fee for some services

Additional services


May offer credit counseling and financial tools, such as credit score trackers

Offer an array of free educational content, such as bankruptcy counseling, debt management assistance and more


You could potentially settle your debts for less than what you owe

Improves your credit standing by removing reporting mistakes that lower your score

Experts can help you set up a personalized debt repayment strategy and provide free financial guidance


Involves stopping monthly debt payments until a settlement is reached, which will hurt your credit for at least seven years

Only works if you have inaccurate or outdated information on your credit report

Results can vary depending on your situation and/or the credit counselor you work with

Which Option Is Right for You?

If you have significant unsecured debt and are struggling to pay your bills, debt settlement might be an option. However, there's no guarantee creditors will agree to reduce your outstanding balances. This can leave you with a higher amount of debt than when you started and a ruined credit history.

Credit repair is ideal if you have bad credit due to errors or inaccuracies on your credit report. It can also help if your report is still showing items that are older than seven years. By addressing these mistakes, you can boost your credit score — significantly, in some cases. However, if the negative items in your report are accurate, credit repair won't help. It’s important to remember that as you're looking into hiring a credit repair company, and make sure to avoid those that promise to eliminate all negative items from your report.

Credit counseling, on the other hand, is suitable for anyone who needs help managing their finances and improving their credit. It can be helpful in a wide variety of situations since a credit counselor can provide personalized budgeting assistance, debt management education, homeownership workshops and more. Overall, this is a great option for individuals seeking support and guidance to improve their financial health over time.

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Debt Settlement, Credit Repair Or Credit Counseling FAQ

How long does it take to improve your credit score after debt settlement?

How long it takes depends on your current financial situation and your overall credit history. However, debt settlement involves missing monthly payments to convince creditors to accept a lower payout, and this alone will leave negative marks that stay on your credit report for seven years. To reduce their impact, you should focus on paying your remaining accounts on time and reducing your credit utilization ratio by paying down any credit card debt.

How much does credit repair cost?

Credit repair companies typically charge between $50 to $150 per month, depending on the service plan you choose. Many, but not all, also charge a setup fee that's usually a similar price to the monthly subscription.

How much does a consumer credit counseling service cost?

Many credit counseling services offer a free initial consultation that includes a review of your financial situation and recommendations for managing your debt. These agencies offer additional services for free, such as budgeting assistance and personal finance workshops. There are some services that have a monthly fee, but these are generally low, ranging between $25 and $75 per month.