Debt Relief: Is It Really a Good Idea?
4 MIN READ
Published November 17, 2023 | Updated November 17, 2023
If you find yourself struggling to keep up with credit card bills or make ends meet, debt relief can be a viable solution. It’s a process that helps borrowers avoid bankruptcy, pay off debt, or make it more manageable through an affordable repayment plan. Debt relief comes in many forms, like debt consolidation, debt management plans, and debt settlement.
Is debt relief a good idea? That depends on your unique financial situation since it isn’t a one-size-fits-all solution. Compare your options, learn how debt relief works, and when it can be a good idea before you decide.
How Does Debt Relief Work?
Debt relief refers to different solutions that help make your debt more manageable. Each debt relief option works in a different way, but some of the ways it can ease your burden include:
- Consolidating multiple debts into one
- Reducing the amount of debt you owe
- Changes to loan terms
- Reducing the interest rate on debt
Some debt relief options, such as bankruptcy and debt forgiveness, may also wipe off most of your unsecured debt. However, there may be a significant impact on your credit score when you file for bankruptcy, so it’s important to consider the downsides.
Is Debt Relief a Good Idea?
You may have come across services that advertise programs that reduce the amount of debt you owe. So, can these programs really help you? Debt relief is available in many different forms, but it’s important to weigh a debt relief program's pros and cons before you decide if it may be a good idea for you.
Pros of Debt Relief
Here are the top benefits of debt relief programs:
- It can help you avoid bankruptcy.
- Debt relief can help you become debt-free faster.
- It may reduce your total debt through negotiations.
- It may reduce the interest rate you pay.
- It may help you get your finances back on track.
Cons of Debt Relief
While there are a number of advantages of debt relief, there are also a few disadvantages that you should consider. Do debt relief programs hurt your credit? Yes, the impact on your credit score will vary based on the program you select.
Here are a few drawbacks to consider:
- There may be fees associated with the program.
- You may need excellent credit to qualify for some programs like debt consolidation.
- Debt relief may lower your credit score.
- You may owe taxes on forgiven debt, which is considered taxable income.
Types of Debt Relief Programs
- Debt management: Nonprofit credit counseling agencies can enroll you in a debt management program (DMP) that may lower your interest rates or waive penalties and fees.
- Debt consolidation: It involves taking out a loan at a lower interest rate or using a balance transfer credit card to pay off high-interest debts.
- Debt settlement: Debt settlement services involve negotiating with debt collectors to settle your account for less than you owe.
- Debt forgiveness: This is when a lender forgives some or all of your debt if you agree to pay a lump sum. Debt forgiveness may also come in the form of a government debt forgiveness program, such as student loan forgiveness.
How To Find a Reputable Debt Relief Service
Once you’ve determined if debt relief is a good idea for your unique situation, the next step is to find a reputable company to work with. Start by reviewing our recommendations on the 5 best debt relief companies in 2023.
How To Choose a Debt Relief Company
When choosing the best debt relief or debt settlement companies to work with, it’s important to first understand the type of debt relief they offer. Take the time to understand the differences between debt settlement, debt consolidation, and other options, and select a company that offers the type of program you want to enroll in.
Make sure the company is transparent and open about how their programs work and what fees you may have to pay. You should also verify the company’s reputation by checking its reviews online and ensuring there are no major complaints against it in the consumer complaint database that the Consumer Financial Protection Bureau (CFPB) maintains.
Red Flags To Avoid
Debt relief scams often target vulnerable borrowers who are in dire need of a solution to their debt problems, but they’re becoming increasingly rare today. Before you sign up for any program, be sure to look out for these red flags:
- Promising or guaranteeing results.
- Offering solutions that sound too good to be true.
- Requesting your banking and personal information.
- Not being transparent about what type of services they provide.
- Asking for upfront fees before delivering any services.
Let Us Help You Decide if Debt Relief Is a Smart Idea for You
Accumulating a lot of debt can make it difficult for you to keep up with your monthly bills or save for your future. Whether it is right for you comes down to your unique financial situation, but if you’re struggling to keep up with debt payments and can’t see a way out, it may be worth it to explore debt relief.
TurboDebt can evaluate your financial situation and help you decide if debt relief is right for you. Connect with us today for a free consultation.