National Debt Relief Review: Does Debt Settlement Work? - NerdWallet (2024)

National Debt Relief is a debt settlement company that negotiates on behalf of consumers to lower their debt amounts with creditors.

Consumers who complete its debt settlement program reduce their enrolled debt by an average of 23% after its fees, according to the company.

Debt settlement is one of several debt relief options consumers have. You'll want to consider whether you might qualify for another debt solution, compare fees and think about whether Chapter 7 bankruptcy might wipe out more of your debt more quickly.

Working with National Debt Relief

How to qualify: National Debt Relief works with consumers who have at least $7,500 in unsecured debt from credit cards, personal loans and lines of credit, medical bills, business debts and private student loan debts. There is no cap on the amount of debt a consumer can have in order to work with National Debt Relief.

National does not settle debt from lawsuits, IRS debt and back taxes, utility bills or federal student loans. It can't settle auto or home loans or other types of secured debts (debts with collateral).

The company says its average client has more than $28,000 in total debt. National does a soft credit pull during the application process to verify creditors and outstanding balances owed on each debt. A soft credit pull does not affect your credit score.

Because of varying state regulations, National is not available in Oregon, Vermont and West Virginia.

The debt settlement process: Once you hire National Debt Relief, an escrow account is established in your name. Then, rather than paying your creditors, you deposit a monthly payment to this account. National determines the monthly payment level, which is often lower than the total monthly payments on customers’ unsecured debts.

Ceasing payment to your creditors means you become delinquent on your accounts, accruing late fees and additional interest, and your credit score will tumble.

National then negotiates with individual creditors on your behalf to get them to accept less than the amount you owe. Because you're no longer paying the creditor, it may view getting a reduced amount as better than risking no payment at all.

If they reach an agreement, you pay the creditor from the escrow account, either a lump sum or with installment payments. The first settlement typically happens within three to six months.

Cost: The company collects a fee when a debt is settled. In 2010, the Federal Trade Commission made it illegal for debt settlement companies to charge upfront fees.

National’s fee varies from 15% to 25% of your total enrolled debt, depending on the amount you owe and the state you live in.

The escrow account requires a $9 setup fee and monthly charge of $9.85.

Savings: National Debt Relief says its clients realize an approximate savings of 23% when including its fees, based on 2022 data. This savings applies only to clients who stay with the program until all of their debt is settled. Although National says the majority of people who enroll in the program complete it, some customers drop out for various reasons, including the inability to save enough money to settle debts.

Time frame: On average, the company says, customers who complete their debt settlement program with National do so within two to four years.

National Debt Relief at a glance

What to know about National Debt Relief

Average savings: National Debt Relief says its clients see savings of about 23%.

Minimum debt requirement: National Debt Relief requires a minimum of $7,500 in unsecured debt to qualify.

Customer experience: The company has an A+ rating from the Better Business Bureau, with about 275 customer complaints closed in the past three years. The complaints centered on problems with the product or service, billing and collection issues, and advertising and sales issues.

Risks of debt settlement

The risks and drawbacks associated with debt settlement include:

It hurts your credit: Because you’re required to stop making payments on enrolled debts, those accounts will be marked delinquent on your credit reports. Your credit scores are likely to take a significant hit, especially if you were not already delinquent on those accounts, and the negative marks will continue until/unless a settlement is reached. Delinquencies stay on your credit reports for seven years, as do accounts charged off by lenders, potentially affecting future applications for credit and even employment.

Success isn’t guaranteed: Some creditors may sell your debt to a third-party collection agency or debt buyer.

You may still hear from creditors or debt collectors: There’s no guarantee your creditors will want to work with National Debt Relief, and you may be contacted by debt collectors or sued by creditors during the process.

Interest and fees continue to accrue: Until you enter a settlement agreement, you’ll accrue additional interest and late fees on your debt. If you don't stick with the program to completion or if National can't negotiate a settlement, you may end up with a higher balance.

Forgiven debt may be considered taxable income: Forgiven debts over $600 may be counted as income on your taxes. Creditors may send a 1099-C form to you in the mail and to the IRS. One exception is if you are insolvent (your liabilities exceed your total assets) at the time the company settles with your creditors.

National Debt Relief vs. other options

The majority of clients who enroll with National Debt Relief are not delinquent on their debt, the company says. Rather, they have been making on-time but only minimum payments or are on the verge of falling behind.

Debt management plan

You’ll pay a nonprofit credit counseling agency to consolidate your debts into one monthly payment, while also reducing your interest rate, to pay off your debt faster. This is a good option for consumers in credit card debt who have a steady income to repay the debt within three to five years. Unlike debt settlement, a debt management plan should help build your credit score.

Debt consolidation

With debt consolidation, you transfer multiple debts into one new debt via a balance transfer credit card, debt consolidation loan, home equity loan or line of credit, or 401(k) plan loan. The new debt should have a lower interest rate, which can make payments more manageable and help you pay off the debt faster while avoiding wrecking your credit.

Bankruptcy

Bankruptcy lets you resolve your debt under protection from a federal court. Chapter 7 bankruptcy erases most debts in three to six months and wipes the slate clean, and you may get to keep certain assets. It’ll stop calls from collectors and prevent lawsuits against you. Like with debt settlement, your credit will suffer, but research shows credit scores rebound quickly.

DIY debt settlement

You can pick up the phone, call your creditors and negotiate with them yourself. As with using a debt settlement company, success isn't guaranteed, but especially if you owe only a few creditors, it could save you time and money.