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If you are one of the many Americans with increasing financial burdens like mortgages, federal student loans, credit card debt, personal loans, auto loans, or other unsecured or secured debts, you're not alone—there are many debt relief options to help you.

With the changing economic climate after the pandemic, millions of Americans across the country are being affected by the rising cost of living.

If you are feeling overwhelmed with debt, please know that there are options available to help you get back in control of your finances. Seeking debt relief programs is one of the most effective ways to help you regain control of your life and financial obligations.

Debt relief is available in many forms. Each with its own pros and cons. Keep reading to learn more about how debt relief works and determine the best option for your individual circumstances.

What Is Debt Relief?

Debt relief refers to strategies that make debt easier to manage. While there are several different types of debt relief programs, their goal is always to help you find a path toward a debt-free life.

The type of debt resolution program that is suitable for you will depend on the specific kind of debt you currently have and qualification requirements for the chosen debt relief program. It also hinges on the kind of assistance you’re seeking to manage or eliminate your debt.

Debt relief programs can help you in several ways, such as:

  • Reducing the interest rate you pay
  • Getting favorable terms on a loan
  • Negotiating for a reduction in the principal amount
  • Shortening or extending repayment terms
  • Having penalties or fees waived


When To Look For Debt Relief

Generally, debt relief is right for you if:

  • You can’t manage your current debts.
  • You are struggling to make payments on your debts.
  • You are behind on your credit card bills.
  • You are behind on your student loan payments.

Ideally, you should look into debt relief as soon as you realize there’s a problem. The sooner you take action, the easier it will be for you to become debt-free. It is essential that you look into the habits that are currently keeping you in debt and avoid creating new debt while you are working on paying off your existing bills.

It is vital to know that there are two types of debt:

  1. Secured debt is debt that is tied to an asset, such as your home or your car. In case of missed payments, creditors can seize the asset.
  2. Unsecured debt is debt not tied to an asset and thus typically carries higher interest rates. Examples of unsecured debt include credit cards, medical bills, and personal loans.

Teresa Dodson, debt expert and founder of Greenbacks Consulting, offers her opinion on using debt relief. “If you are buried in debt, it's a great option to provide you some additional cash flow and get out of debt at the same time,” Dodson shares.

Credit Card Debt

Credit card debt is currently the second-largest source of debt after mortgage debt. If you have maxed out credit cards, you may want to consider a credit card debt relief program or a similar option.

To qualify, you have to meet certain requirements:

  • Higher credit scores to qualify for a new low-APR consolidation loan or a balance transfer credit card.
  • Higher debt amounts to be eligible for certain debt relief programs.
  • An income review to determine if you are eligible for these programs or for a bankruptcy filing.

Doing-It-Yourself Debt Relief

Reducing your debt balance and interest rate requires discipline and planning. However, if you can create a detailed plan to reduce your debt, negotiate with your creditors, and stick to a payment plan, you can do it yourself successfully.

DIY debt relief may not be for everyone, but you can start by contacting your creditors and explaining your circumstances. Many credit card companies offer financial hardship programs and are often willing to waive fees and lower interest rates.

You can also negotiate a debt settlement with your creditors on your own, making a lump sum payment. However, the process can be stressful and complex. It's much easier and less stressful to work with a reputable debt relief company that understands the process of how to negotiate with creditors.

You may also consider conventional strategies to pay off debt. If your credit scores are still good, you may be eligible for a debt consolidation loan with lower interest rates. You can also apply for a 0% balance transfer credit card.

If you decide to go with DIY debt relief, it is crucial to have a plan in place to prevent you from getting into debt again. If you have missed payments in the past or are in considerable debt, it may also be challenging to qualify for a consolidation loan or a new credit card.

How Your Credit Score Is Affected by Debt Relief

Debt relief can impact your credit scores, depending on what your score was to begin with, and the debt relief option you choose. For example, your credit scores may already be affected if you are behind on monthly payments, your utilization rate is maxed out, and you choose to go for debt settlement.

Debt management plans and credit counseling typically have no or minimal impact on your credit. It may also help you improve your credit score if you can reduce your debts and make timely payments once you have created a new repayment plan.

It is important to research and read the terms and conditions before you opt for any credit card debt relief program or loan. Make sure to monitor your credit scores regularly to keep track of any changes.

How Much Does It Cost To Get Debt Relief?

Typically, debt settlement companies charge 15% to 25% of the debt they settle as fees. The fee is calculated on the enrolled debt, which is the amount of debt that you have when you enroll in the program. This fee cannot be charged until you have settled your debt.

Debt settlement can sometimes be the cheapest way to get out of debt, depending on how much you owe, your account’s standing, and other factors.

Upon completion, you may see savings of 30% on your original debt, including fees. In many cases, you may also be able to save up to 50% on your original debt before fees.

There may also be tax costs associated with debt settlement. Generally, forgiven debt is considered to be taxable income by the IRS. However, if you can demonstrate that you are insolvent, you may not have to pay the required taxes. The IRS will typically consider you insolvent when your total liabilities are more than your total assets.

When it comes to credit counseling, services are very affordable and can range from $25-$50 for monthly monitoring. If you want to get a more detailed overview of your finances, you can also work with a counselor for $75+/hour.

With a more in-depth review of your finances and the help of a credit counselor, you may be able to reduce your interest rates to about 9% on average.

Beware of Debt Relief Scams

Whether you are interested in debt management plans, credit counseling, or other debt resolution programs, it is important to ensure that the company you choose to work with is legitimate to avoid being a victim of a scam.

We recommend checking the Consumer Financial Protection Bureau to see if there are any complaints registered against a debt relief company. Then, verify the reputation and reviews of the company at the Better Business Bureau (BBB).

Be aware of red flags, such as companies demanding fees before the services are offered, lack of transparency, and requests for access to your personal information. Learn more about identifying and avoiding debt relief scams to protect yourself from fraudulent practices.

Before you enter into any agreement, ensure that you understand the fees that you will need to pay, the tax implications, and how the creditors are being paid.

Debt Relief Programs To Get You Out of Debt

There is no one-size-fits-all debt relief program. Depending on what you currently owe, the types of debt you have, and interest rates, there are many available debt relief programs.

Here is a closer look at some of the most common options available.

Debt Consolidation

Debt consolidation involves combining several debts into one. This can be done through a debt consolidation loan or balance transfer credit cards. With debt consolidation, you will only be making one debt payment each month.

A debt consolidation company can help you combine all your debts into a single loan at a lower interest rate. This means that you will be saving a considerable amount of money as you pay off your debts. Repayments are easy and straightforward because you will only be dealing with one payment each month.

Debt Settlement

Debt settlement is a viable option if you are facing overwhelming debt and are already three to six months past due.

With this option, you may be able to settle your total debt for less than what you currently owe. You’ll need to make a lump sum payment to settle and close your account once the lender accepts your settlement offer.

Debt settlement is one of the most aggressive strategies to pay off debt, as it allows for the fastest time frame and largest potential for savings on total debt owed.

Debt Management Plans

While debt management can involve different strategies for addressing debt, some plans are more effective than others. The best debt management plans will allow you to enroll debts into a program and make a single payment towards the plan each month.

The payment you make will then be distributed among your different creditors. With this type of plan, you do not have to open a new balance transfer credit card or take out personal loans. You may also be able to have fees waived or receive lower interest rates.

Credit Counseling

If you need help coming up with a feasible debt repayment plan, seeking credit counseling can be a good fit.

Many nonprofit and for-profit credit counseling agencies have credit counselors who can discuss your finances, current circumstances, debt, and budget. They can review your debt and spending to help you create an individualized plan and payment schedule.

Bankruptcy

Bankruptcy is the last resort option for dealing with debt. Chapter 7 bankruptcy is means-based and requires you to be in extreme financial distress. If you qualify, this can be an excellent option to remove most of your outstanding debt, such as medical debt and credit cards. However, it cannot provide student loan debt relief or eliminate back taxes.

On the other hand, Chapter 13 bankruptcy is much easier to qualify for compared to Chapter 7, making it the more common type of bankruptcy. Referred to as wage earners bankruptcy, in Chapter 13, all or most of your debts are paid back over the course of a 3-5 year payment plan based on what you can afford.

If you're thinking about filing for Chapter 13 bankruptcy, you should be aware of the following potential drawbacks:

  1. You will usually have to pay any legal costs upfront. (Around $3,000).
  2. The bankruptcy is on your credit for 7-10 years and on your public record permanently.
  3. You must commit all of your disposable income to your creditors.

Bankruptcy is a legal process that requires a few months to complete, and it's always wise to speak with a bankruptcy lawyer to determine if it's the right option for you. While bankruptcy can have a major impact on your credit report, it may be the best available solution in certain cases.

Debt Forgiveness

Debt forgiveness or debt cancellation programs are not common. When available, this option can help you significantly lower or erase certain debts. You will need to meet certain qualifications to be eligible for debt forgiveness programs.

Based on your individual circumstances, you may be eligible for debt forgiveness programs that allow partial or complete cancellation of debt. Usually, this involves negotiating with your lenders to accept a lump sum payment of less than the original amount you owed and forgive the rest.

Debt Relief Companies

If you are overwhelmed with debt, debt relief companies can provide you with the information and guidance you need to come up with a workable solution to pay your bills.

Debt relief companies can help you settle your debt, lower your interest rates, and come up with a repayment plan that fits your budget.

While there are several debt relief companies offering their services, it is essential to ensure that the company has knowledgeable debt relief professionals who are trained and have the required certifications. They can review your debts, income, and budget and suggest the right debt relief option for you.

Get Your Debt Under Control With Debt Relief Programs in Your State

Now you know that there are many types of debt relief plans available. The next step is to connect with an accredited debt relief company to discuss your unique circumstances and come up with a customized repayment plan.

Take a look at state-specific debt relief programs and start your journey towards a debt-free life today: