A debt settlement company is a company who specializes in helping people with overwhelming debt settle with their creditors. Debt settlement companies can help individuals with debt issues settle with their creditors for less than they owe.

Of course, this will give the individual’s credit score a significant dent that stays on public record for seven years, but at least it gets people out from under their crushing debt. A settlement company will attempt to negotiate a settlement deal on your behalf with one or all of your creditors.

This can actually take a while; up to three years in some cases. In the meantime, you have no guarantee that the creditor will accept whatever lump sum you manage to scrape together to offer them, and you are racking up more fees, debt, and disadvantageous credit ratings all the while.

Credit counselors are different than debt settlement companies, and they will actually enter into agreements with creditors at the outset that no further penalties or charges will be levied against the debtor while he is in credit counseling.

This agreement is not in place with debt settlement companies. Any amount that they convince a credit card company may be used in the calculation of their fees, and this forgiven amount may also be considered gains by the IRS, and taxed.

So if you waited 2 years while debt continued to pile up, and finally settled for an amount less than that, but paid taxes and fees on the forgiven amount, you probably wouldn’t come out ahead, especially with the tarnished credit score.

Debt consolidation companies use a different sort of arrangement, often where they pay off the various debts and credit cards on behalf of the debtor; this is treated as a single loan to the debtor, and the interest rate charged is likely to be less than he or she was paying to the credit card companies.

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