Key Takeaway

Those who are trying to grapple with mounting debt may feel hopeless. But, there are many debt relief options available to help you pay off your debts in 2023 and find a way towards a debt-free life.

Struggling with debt can be nerve-wracking. Not being able to make the minimum payments can be even more disheartening. 

If you don’t see a solution to your financial problems, it may be time to consider debt relief options.

Debt relief programs can help you deal with debt in several different ways:

  • Negotiating with your lenders to reduce the amount you owe.
  • Asking your creditors to reduce your interest rates.
  • Negotiating the repayment terms to make payments more manageable.

Regardless of the form it may take, debt relief can ease your burden and help you find a way out of your difficult situation.

The first step in regaining control of your finances is learning more about the options available to you.

What Are Debt Relief Options?

Debt relief programs can help you benefit from extended loan terms, reduced debt balances, lower interest rates, and waived fees and penalties. 

Many programs offered by nonprofit and for-profit companies can help you consolidate or manage your debt through a repayment plan that works for your budget.

There are several options for debt relief, each working in a different way. Regardless of the way they work, they share the common goal of helping you pay off your debt.

Most debt relief services are designed to help you avoid the worst-case scenario: bankruptcy. 

Successfully completing a program can help you save up to 50% on your enrolled debt before fees. Almost 98% of people enrolled in a program report saving more than the fees.

It is best to speak to a professional who can assess your budget and your debt-to-income ratio to find a program that works for you. They can take full stock of your finances and suggest which plan will fit your needs.  

When To Look for Debt Relief Options?

If you have been unable to pay your debts, it is crucial to resolve your debt as soon as possible. 

This is particularly true if:

  • You are behind on payments on credit card debts.
  • You have missed paying your credit card bills.
  • You have accumulated late fees and penalties.
  • You are receiving calls from debt collectors.
  • You are unable to make any more than the minimum monthly payments.

The household debt in the U.S. has risen to over $16 trillion, so it isn’t so surprising that so many people are struggling with debt.

Here are some of the top reasons people get into debt: 

  • The cost of living continues to rise across the country while income has not kept pace. The food index in the U.S. grew to 11.9% in 2022, which is the highest growth recorded since 1979. The rising cost of living makes it difficult for people to survive on their income.
  • People facing unemployment may have to rely on credit cards to handle their necessary expenses to tide them over until they find a new job.
  • Unexpected medical expenses can result in staggering medical debt for many people. 57% of all bills in collections and on credit reports in 20221 were medical bills.

6 Debt Relief Options to Consider

Fortunately, there are several types of debt relief plans available to help you pay off your debt sooner and even save money in the process.

Here are the top six options to choose from. 

1. Get Counseling

Credit counseling is offered by several nonprofit and for-profit debt relief organizations to help you manage your debt. 

A credit counselor can review your budget and suggest a repayment plan that will work with your financial situation.

Debt counseling is a good option for those who need expert advice from a professional. 

Sometimes you just need a trained professional to provide you with budgeting and debt advice so you can get a handle on your finances.  

Check the National Foundation for Credit Counseling to find credit counselors in your area.

Provide them with detailed information about your income, total debts, and your expenses so they can suggest the best debt solutions for you.   

2. Consider Bankruptcy

Bankruptcy can damage your credit history severely, but it may be a viable option if there is no way for you to repay your debt. 

Depending on your circumstances, you may be able to file for Chapter 7 or Chapter 13 bankruptcy.

In Chapter 7, your assets will be liquidated to pay off your debts. The remaining unsecured debts will be discharged.

With Chapter 13 bankruptcy, you will be able to create a repayment plan. Once the repayment plan is successfully completed, the remaining unsecured debts will be discharged.  

You will need to consult a bankruptcy attorney to file for bankruptcy. You will also need to pass the means test to be eligible.  

3. Enroll in a Debt Management Plan

Many accredited credit counseling agencies can enroll your eligible debt into debt management programs.

The counselor can also negotiate with your lenders to reduce or waive fees and penalties and lower interest rates.

Debt management programs are suitable for those who have multiple credit cards or debt payments.

You will need to close some credit cards and lines of credit and be willing to stick to the payment plan, which may take three years or more to complete.  

Always check the ratings and reviews of the credit counseling company online before you decide to work with one. Ask about potential fees and the credit card accounts you may have to close before you enroll in the program.

4. Consolidate Your Debt

Debt consolidation options will allow you to consolidate all your debts by taking out a new credit card or low-interest personal loan. 

The goal here is to consolidate all your debts into a single, more manageable payment. 

It also helps you reduce overall costs by replacing your high-interest debts with a lower-interest credit card or consolidation loan. 

A debt consolidation loan is usually recommended for those who still have a fair credit score. 

If you are unable to get a new loan or credit card, you may want to explore other debt-relief options for bad credit. 

Before you consider debt consolidation, it is essential to compare your options by reviewing APRs and fees. 

Prequalify with different lenders to see if you are likely to qualify for a credit card or a loan and compare the terms they offer.

5. Apply For Debt Settlement

Compared to debt consolidation, debt settlement options can be a viable way to reduce your total debt.

An experienced debt settlement company can negotiate with your creditors on your behalf to settle your account for a lump sum that is less than what you owe.

If you work with a debt relief company that has considerable experience in settlement negotiations, you may be eligible to save up to 50% before fees on your total debt.

There are many excellent companies to work with today, but if any company asks for upfront fees or guarantees to eliminate your debt, keep looking.

This may be a good option if your debts are in debt collection, your credit cards are maxed out, you’re struggling to make minimum payments, or and you do not have a way to repay the full amount you owe to creditors. 

6. Weigh the Pros and Cons of Doing It Yourself

While DIY debt relief is possible, it requires a lot of planning, discipline, time, and strong negotiation skills.

You will need to have a clear plan to pay off your debts, negotiate with your lenders with your proposal, and be able to stick to the debt repayment plan.

 DIY debt relief may help you save on fees that you may otherwise pay to debt relief companies, but it is not for everyone.

You can start by contacting your credit card companies and lenders to explain your circumstances. Many companies have hardship programs through which they can lower interest rates, waive fees, and offer new repayment terms. 

Another DIY strategy that you can use is applying for a 0% balance transfer credit card or a debt consolidation loan if your credit is still good.

If you already have missed debt or have high debt balances, it may be best to work with a debt relief company. 

What to Avoid When Trying to Pay Off Debt

All of the debt resolution programs discussed above are viable strategies for getting a reprieve from debt.

There are many other options that may put you in a weaker position than when you started. Some of these options may hurt your finances, so it is best to avoid them.   

Borrowing Against Home Equity

If you have home equity, you may be able to borrow against it through a home equity loan to pay off your debts.

You may be able to get a low-interest rate with this option because your home serves as collateral. It's best to avoid this option because of the huge financial risks involved. 

Your home is your most valuable asset, and if you default on your payments, it may result in foreclosure. Your home is one of the best ways of building net worth and borrowing against it will turn it into a liability.

A home equity loan will also have a negative impact on your ability to borrow in the future because it skews your assets-to-liabilities ratio.

Retirement Funds

Tapping your IRA or 401(k) is another option you should avoid because it can set you back years. 

When you use your retirement funds to pay off your debts, you risk the growth that you would have accumulated on those funds. 

Additionally, if you withdraw the money before the age of 59 ½, you may also face withdrawal penalties. On top of that, the money you withdraw is taxable, so you will have to pay taxes on it.

Draining your retirement funds is not an option worth considering because you will lose considerable savings. 

You may have to delay your retirement and face financial hardship in your golden years.    

Now that you know that there are several types of debt relief options available, you should connect with a debt professional to find a program that works best for your needs.

TurboDebt offers counseling, consultation, and planning services to help you create a feasible debt relief and repayment plan. 

We provide multiple debt management options so you can achieve your financial goals. 

Connect with our knowledgeable debt relief professionals for a free consultation today. Here’s what our satisfied clients are saying about our debt relief services.