Learn How to Choose Between a Lawyer vs. Debt Settlement Company

If you’re struggling to pay your debts, you might be wondering if you should hire a lawyer or a debt settlement company to help you negotiate with your creditors.


In most cases, it’s best to avoid debt settlement companies altogether. And although it often makes sense to hire a lawyer, make sure you’re hiring a legitimate law firm and not a debt settlement company masquerading as one.

In almost all cases, it’s better to hire a reputable attorney rather than a debt settlement company if you want help negotiating a debt settlement. And, in some cases, you might be better off settling the debts on your own.

How Debt Settlement Companies Work

Debt settlement companies often claim that they’ll be able to talk your creditors into settling your unsecured debts for pennies on the dollar. If you’re current on your payments, they’ll tell you the creditors won’t settle unless you stop making payments. Usually, the debt settlement company tells consumers to make payments (that would otherwise go to the creditors) to them while they negotiate with creditors. These payments then cover:

A monthly fee for the company to work for you and

Your savings are set aside for future settlements of your debts.


The debt settlement company will contact your creditors once you have saved enough—based on the company’s opinion—and offer each one a lump sum that is less than what you owe. The debt settlement company might also charge a contingency fee, which is a percentage based on the amount you save through settlement, and other fees, like a set-up fee.

What the Debt Settlement Company Won’t Tell You

Most debt settlement companies don’t fully explain the risks associated with hiring the company to their customers. Why not? Because debt settlement companies are for-profit companies. They aren’t in business because they care about your situation or want to help you out. They want to make a buck, and some are outright scammers. In almost every case, you’ll be much better off using the money you would have paid to the debt settlement company to pay down your debt or using it to hire a reputable lawyer to help you.

Here are a few of the downsides to using a debt settlement company that the company most likely won’t mention.

Downside #1: Your Debt Grows

The debt settlement company might not mention that once you stop making your payments, the total amount you owe will increase due to various added fees and interest charges. Also, the company might not mention that your credit will take a major hit because your creditors will report the missed payments to the credit reporting bureaus.

Downside #2: Your Creditors Might Not Settle

They also probably won’t tell you that your creditors don’t have to accept a lesser amount than they’re owed to settle the debt or that many creditors won’t agree to a settlement, especially if you’re working with a debt settlement company. Your creditors might even become more motivated to go after you and file a lawsuit sooner than they otherwise would have if you’re working with a debt settlement company.

Downside #3: Debt Settlement Fees Are Typically High

Using a for-profit debt settlement company can be expensive. These companies often charge a set-up fee, a monthly fee, and a percentage of each settled debt (say, 25%), and they might pay themselves before paying any of your creditors. Or a debt relief company might disappear with your money. Even if the debt relief company works to settle your debts, it won’t do anything that you couldn’t do for yourself for free. In almost all cases, you’ll be better off negotiating debt settlements on your own, hiring a debt settlement lawyer to help you, or filing for bankruptcy, instead of hiring one of these kinds of companies.