Debt Relief

There are several professional debt relief options are available to help you reduce or even get rid of your debt in a consistent and logical manner.

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Debt Relief and Reduction

Debt is an unfortunate fact of life for many Americans.

Taking on debt — or borrowing money that you promise to pay back — doesn’t necessarily have to be a bad thing. In fact, it can be a first step toward financial growth and stability, like when you use a student loan to get a college degree or take out a mortgage to buy a home.

But some types of debt don’t really have an upside. Credit card debt and payday loans, for example, often come with high interest rates, and can lead to a never-ending cycle of borrowing. Unfortunately, it’s a cycle many U.S. adults find themselves in:

  • Credit card balances rose by $71 billion from early 2021 to 2022
  • Nearly 1 in 3 U.S. adults has debt in collections
  • Americans pay $120 billion in credit card interest and fees each year
  • 22% of U.S. adults pay bills late

In other words, if you’re looking for relief from debt, you’re not the only one. Understanding your debt relief options could be a first step toward financial freedom.

What Is Debt Relief?

Debt relief generally refers to any products, services or tools that can help you reduce or manage your debt, whether through professional help or on your own.

Professional debt relief can include anything from nonprofit credit counseling agencies and debt management programs, to debt management apps, and financial products you can use to reduce or pay off debt more easily. Sometimes the “relief” these options offer comes in the form of lower interest rates , reduced monthly payments or having part of your balance forgiven.

Debt settlement companies, also known for referring to themselves as “debt relief” companies, are also an option, however their titles can be misleading. Lenders are not forced to accept settlement offers and, if they do, that negative mark – debt not fully paid – stays on your credit report for seven years.

When to Seek Debt Relief

There’s no one-size-fits-all solution for managing debt. But if any of the following describes your current situation, it’s worth looking into a debt relief solution ASAP:

  • You have no hope of repaying your unsecured debts — that includes credit cards, medical debt or other debts that have no property as collateral — within the next five years.
  • You’re facing serious consequences for unpaid debt, such as home foreclosure or vehicle repossession.
  • You struggle to cover your monthly necessities, or you live paycheck-to-paycheck, due to debt obligations.
  • You avoid answering calls or opening mail for fear of being contacted about unpaid debt.

Debt Relief Pros and Cons

If you’re not sure how you’ll manage your debt obligations, or you’re feeling like you’ll never be debt-free, consider these advantages of pursuing debt relief:

  • Free help is available. Most nonprofit organizations offer credit counseling sessions for free. Just be sure to check, since some agencies could require payment for certain services.
  • Reduced interest rates or monthly payments. A debt consolidation loan or debt management program can reduce the amount of interest you pay on your debt, or get you into a lower, more affordable monthly payment.
  • Professional support. Certified credit counselors can help consumers build an affordable budget, understand their debt-relief options and clean up their credit reports. These counselors don’t just offer a quick fix, they can promote long-term financial stability by increasing customers’ financial literacy.
  • Reduced debt amount. Some debt relief options, such as negotiating a lump-sum settlement with your lenders, could result in having as much as 50% of your balance forgiven. That’s because, even if you can’t cover all of what is owed, lenders may still want to work with you to collect as much of the money as possible.
  • A fresh start. An extreme debt relief option, like bankruptcy, can give you a financial reset by forgiving or reducing debt, and even stopping your lenders’ foreclosure or repossession efforts.
  • Stop debt collector calls and letters. Some debt-relief options can help you get on better terms with your lender, or find ways to stop them from making constant contact. This can be done by getting on a plan to rehabilitate your debt, for example, or by filing bankruptcy to stop them from making collection efforts.

The negative side of debt-relief can be more damaging than consumers realize. That’s, in part, because not all debt relief services are the same. Here are a few of the cons to consider:

  • Time commitment. There is no instant fix with debt-relief. Whether you’re saving up for a settlement offer or working on a repayment plan, it often takes around 3-5 years to become debt free.
  • No guarantees. Lenders usually want to work with you, but they can choose not to. This is especially true with debt settlement. You may send money to a debt settlement company for several years before finding out your creditors won’t negotiate with them.
  • Fees for services. With the exception of some nonprofits, there will be a fee for debt relief. This includes company fees for services or financing products, lawyers’ fees for bankruptcy, and even nonprofit counseling agencies that sometimes charge a fee for facilitating your monthly payments.
  • Late fees and other penalties. If your debt relief option involves skipping payments to creditors, you’ll be penalized with late fees and interest charges. These fees are specifically an issue when it comes to debt settlement, but could be assessed any time you miss a monthly debt payment.
  • Tax consequences. If you have debt forgiven, it may be considered taxable income. If so, the creditor who forgives the debt will send you a 1099-C detailing how much the original debt was and how much was forgiven.
  • Credit damage. Debt settlement and bankruptcy can have damaging effects on your credit scores. Even if you eventually settle or get the debt dismissed, a record of the incident will remain on your credit reports for 7-10, and can make it difficult to get approved for loans at affordable rates in the near future.

Some of the professional credit card debt relief programs include:

In summary, there are a number of ways to get relief, and each has its own pros and cons. When it comes to getting getting help paying credit card debt, be sure to weigh the potential rewards and consequences of each of the following options before choosing which route to take:

  • Credit Counseling
  • Debt Management Programs
  • Debt Consolidation
  • Debt Settlement
  • Bankruptcy

Here is a look at each of those solutions and how debt relief works.

Programs and Services Often Left to a Professional

You may choose to handle debt relief yourself, but working with a professional could lead to more options for restructuring or reducing your debt.

Credit Counseling

Working with a nonprofit credit counseling agency means having a professional to guide you through all your options for debt relief. A credit counselor can examine your unique situation — your budget, credit history and more— to make personalized recommendations for a solution.

Pros of Credit Counseling

  • Most nonprofit organizations offer credit counseling sessions for free, including debt management plans (DMPs), however some charge a fee for this service.
  • Credit counselors obtain and maintain professional certifications. These personal finance professionals can teach you the basic skills to reduce debt and manage your expenses.
  • Credit counseling firms don’t specialize in quick-fixes. They often offer a suite of services, available through a series of phone or in-person appointments, that are meant to help consumers avoid financial emergencies, manage debt, build credit, achieve financial stability and more.

Cons of Credit Counseling

  • Each agency is different. Not all agencies deliver what they advertise, and some for-profit companies even try to appear similar to nonprofit credit counseling agencies. Make sure you find a reputable credit counseling agency to help in your debt relief journey.
  • Requires flexibility. Credit counselors aim to offer the best financial advice based on all of the information you share. That means the advice you get may not be what you wanted. A credit counselor should present you with a clear plan of action, but it may take more time and effort than you expected to reach your goal.
  • Long-term commitment. If you get set up on a DMP, it could take a few years to pay off all of your debt, and you may have to close all but one of your credit card accounts. The end-goal of being debt-free is likely worth it, but some consumers lose patience and drop out before they eliminate all their debt.

Debt Management Plan

To enroll in a debt management program, you’ll first have to be screened by a credit counselor. Based on your specific creditors, your debt balances, and other details like whether or not you’re current on your payments, you may be eligible to enroll in a debt management program.

Enrolling in a debt management program could lead to a more manageable arrangement for getting out of debt, but it also involves some sacrifices. Here’s what you should consider up-front:

Pros of Debt Management Plans

  • Consolidated payment. You’ll make one monthly payment to the counseling agency that will then be distributed to your creditors in agreed upon terms.
  • Long-term credit benefits. A debt management program can save you from damaging your credit by avoiding missed payments. Plus, your scores will improve as you pay down debt balances over time.
  • Budget support. Your credit counselor will help you create an affordable monthly budget that includes your debt payments.
  • New credit terms. Under a DMP some of your creditors may agree to reduce your monthly payment amount, reduce your interest rate, or forgive certain fees.

Cons of Debt Management Plans

  • Time Commitment. Debt management programs typically take 3-5 years to complete.
  • The counseling agency usually charges an enrollment and maintenance fee to help cover the cost of their services, including processing your payments.
  • All-or-nothing, If you drop out of the program, you’ll lose the concessions made by your creditors. That could include an increase in your interest rates or monthly payments, or reinstated late fees.
  • Short-term drop to credit scores. If you’re required to close your credit accounts under a debt management plan, you’ll likely see an immediate drop to your credit scores. These points may take some time to regain.

Debt Consolidation

Debt consolidation involves taking out a new loan or credit to pay off debt. In effect, this allows you to combine multiple debts into one. The goal of debt consolidation is to make debt payment more affordable or more manageable. But this option has its own risks and rewards:

Pros of Debt Consolidation

  • Options. You could use a credit card or a personal loan to consolidate debt, by applying for a new account through your bank, credit union or otherwise. Loans in particular tend to offer lower rates, and lenders may even negotiate with you to match rate quotes you’ve received elsewhere.
  • Save money. You may be able to get a lower interest rate when you take out a new loan to consolidate, especially if your credit scores have improved or if you’ve paid off a significant amount of your original debt balances. Not only do lower rates save you money but they can also help you pay off debt faster.
  • Budget relief. If you need budget relief, consolidating could get you into a new, more affordable monthly payment.

Cons of Debt Consolidation

  • Credit qualifications. Not everyone is eligible for debt consolidation loans or new credit cards, especially if your credit score has suffered due to missed debt payments or maxed out accounts.
  • Fees. Your new financing will come with its own interest rate and fees. Be sure to do the math and make sure consolidating will save you money. Read the fine print on balance transfer cards, since they often come with a 3% balance transfer fee.
  • Collateral damage. Some loans require collateral, such as your home or car. A collateral loan may come with lower rates, but you’ll risk losing your property if you fall behind on the payments.

Debt Settlement

Debt settlement involves negotiating with creditors to pay less than the full amount you owe. You can attempt to make these negotiations yourself, or work with a debt settlement company that negotiates on your behalf.

A debt settlement company will take over management of your debt accounts, collect monthly payments and keep them in a savings-type account (minus fees), and eventually offer some of the funds to your creditors as lump-sum settlements.

This can be an extremely risky solution for dealing with debt, so it’s important to understand the pros and cons:

Pros of Debt Settlement

  • Potential savings. You’ll rack up fees from your creditors and from the debt settlement agency, but there’s a possibility of saving money when it’s all over with. While some creditors won’t negotiate a settlement, others may accept a lump sum for as little as 50% of what you owe.
  • You may pay off debt faster. The process of debt settlement often takes three or more years to complete. That may seem like forever, but for some debtors this could mean being debt free sooner than if they paid off their full debt balances on their own.

Cons of Debt Settlement

  • It’s not recommended. Several consumer advocacy agencies caution people against using debt settlement, including the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB).
  • Late Fees. If you stop sending payments to your creditors, even if it’s to make a settlement, you’ll begin accruing late fees, interest charges and other penalties.
  • Time Commitment. It can take as much as three years or more to save up enough money for settlement offers, so many customers end up dropping out of their debt settlement program before they’ve settled their debts.
  • Damaged Credit. Debt settlement can damage your credit score just as much as filing bankruptcy, and settled debts will remain on your credit reports for seven to ten years.
  • Settlement Fees. Debt settlement companies typically charge a fee of 20% to 25% of the final settlement amount, which makes it harder for customers to realize any savings.
  • Creditors May Refuse. Debt settlement companies claim they can get as much as 70% of your credit card debt forgiven, but the truth is that your creditors may refuse to work with a debt settlement company.
  • Tax Consequences. The IRS requires you to report forgiven debt of $600 or more as taxable income, so you may have to pay more taxes after debt settlement.
  • Legal consequences. Once creditors become aware that you don’t intend to repay your full debt, they may choose to sue you for the money. The lawsuit could result in wage garnishment or frozen bank accounts.

Debt Forgiveness

In addition to debt settlement, there may be other ways to have some of your debt forgiven. This includes programs like the Department of Education’s Public Service Loan Forgiveness Program, or other special options from lenders who forgive debt due to financial hardships.

Unfortunately, there are also many debt forgiveness scams, so it’s important to proceed with caution before sharing your information with any agency that claims to cancel debt.

Here are some of the pros and cons of going this route:

Pros of Debt Forgiveness

  • If you qualify for a legitimate loan forgiveness program, you could benefit from having debt forgiven. You’ll likely still have to pay some of it back, but the savings could be a big financial help.

Cons of Debt Forgiveness

  • Scams. Debt forgiveness scams have become increasingly common since the pandemic, especially student loan scams. Instead of looking into forgiveness through an unknown third party, reach out to your lender directly or look up the company’s ratings with the Better Business Bureau (BBB).
  • Tax Consequences. The IRS requires you to report forgiven debt of $600 or more as taxable income, and the amount that’s forgiven will be taxed at the same rate as your income.
  • In order to have some of your debt forgiven, you may have to demonstrate that you qualify for help. This could include providing a number of financial documents, making regular payments for a set period before you’re fully eligible, or otherwise demonstrating that you meet program requirements.


If your debt has become so overwhelming that there doesn’t appear to be a way out, bankruptcy could be a more permanent legal solution.

There’s no guarantee that you’ll qualify to file, but filing for Chapter 7 bankruptcy could result in having your debts canceled, and a Chapter 13 bankruptcy could get you into a 3-5 year repayment plan to eliminate debt. Here’s what you should consider first:

Pros of Bankruptcy

  • A fresh start. Some debtors have no viable way to pay back all of their debt. In this case, the only way to reset your finances may be through a bankruptcy that eliminates most or all of your debt.
  • Stop collectors from calling. When you file for bankruptcy, the court issues an automatic stay, meaning that creditors will be barred from making collection attempts on your debts through phone calls and letters. Once you file, creditors will deal exclusively with your attorney and not you.
  • Protect your property. When you file for bankruptcy your creditors must stop all foreclosure and repossession proceedings. You may also be able to protect important assets like your retirement savings and personal items.

Cons of Bankruptcy

  • Credit damage. Bankruptcy is one of the most damaging events for your credit, and it stays on your credit reports for 7-10 years after you file. This could mean being denied new loans and credit in the near future.
  • Fees. You’ll have to pay for an attorney, plus court filing fees, paralegal fees, bankruptcy trustee fees and fees for the required consumer counseling.
  • Some debts don’t qualify. Some debts can’t be eliminated by bankruptcy, including most student loans, alimony, child support and back taxes.

Services Consumers Can Handle Themselves

You don’t have to work with a third-party to get debt-relief. In fact, some options for reducing debt could save you money and help preserve your credit

The best solution for you might even include a combination of DIY solutions, budget tools or financing options. Here are some of the things you can do on your own:

Tracking Your Spending

Are you clear on where all your money is going? If you don’t keep track, there are probably a ton of expenses you don’t realize are setting you back.

Writing out all  your income and expenses might feel like a bit of a chore, but it is free, and it will give you insights you can’t get anywhere else.

Be sure to take a look at each of these items so nothing goes missed:

  • Monthly bank statements
  • Credit card statements
  • Cash sent and received in mobile wallets or payment apps

Take a look at each item to see what you can reduce, eliminate or cancel, even if it’s just temporarily while you pay down your debt. A temporary increase in income could also be the help you need, or a combination of several of the debt relief options we’ve covered.

Use Budgeting Software

For someone who’s willing to put in a bit more up-front effort, an app or online budgeting software could help you automate the budgeting process.

There are plenty of tools that range from simple to advanced, so it could be as easy as linking your spending accounts and waiting for alerts or recommendations. You can also use platforms that let you set parameters for certain spending categories, or set a specific goal so you can automatically track your progress, like a debt payoff goal.

Refinancing Your Mortgage

Your mortgage is likely the largest debt you owe. For that same reason, refinancing your mortgage could be your biggest opportunity to get financial relief. A mortgage refinance can be hard to qualify for, but it can also result in lower monthly payments, a better interest rate or a paying off the debt sooner.

Not sure if you should try refinancing? You’re most likely to get a good offer from a trustworthy mortgage refinance lender if one or more applies to you:

  • Your home is worth more than you currently owe on your mortgage.
  • Your credit has improved since you took out your current mortgage.
  • Mortgage rates are especially low.

Renegotiate Your Credit Card Bill

Some credit card companies may be flexible when it comes to your payment terms. They may be willing to negotiate your interest rate — especially if you have a history of on-time payments on the account — offer you a hardship payment plan, or reduce your minimum payment.

If you’re considering bankruptcy, you may want to let them know. Sharing this information could help you negotiate a lump-sum payment, since settling is more attractive to creditors than being forced to forgive your full balance in a bankruptcy.

Dealing with Debt Collectors

If a bill goes unpaid for several months or more, it may end up being sent to a collections department or sold to a debt collection agency.

There are several ways to go about resolving collection debt, and similar to debt settlement, you may not need to pay the full balance.

There are, however, similar pros and cons to debt settlement, such as how your credit will be impacted and the tax ramifications for having debt forgiven.

If you do want to pursue relief from collections debt, there are a few steps you should take to get the most relief:

  1. Review your credit reports. Pull your free credit reports to find out who owns the debt, how much you owe and when you last made a payment. If it’s been several years since you last made a payment, there’s a possibility that the statute of limitations for your state has passed and you no longer have a legal obligation to pay.
  2. Determine if you’re “judgment proof.” If you live on a fixed income, there’s a possibility that you are judgment proof, meaning that collectors are not allowed to take legal action to collect certain debts from you. People who live exclusively off government benefits like Social Security or SSI or have very minimal income are often judgment proof. Someone who is already receiving a wage garnishment may also be immune from further debt collector lawsuits if they would cause a significant financial hardship.
  3. Contact the debt collector. If you have the money to negotiate a settlement, call the debt collector directly. You can start with an offer as low as 30% to 40% of your balance, but be prepared to pay as much as 50%. If possible, avoid setting up a new payment arrangement as this can lead to new fees and more credit damage. Then, before sending any payment, make sure to get the agreement in writing, including the fact that your settlement amount will be accepted as “payment in full.”
  4. Send payment (safely). Send a form of payment that is not linked to your personal accounts, such as a cashier’s check. Be sure to keep thorough documentation, such as a receipt for your check and certified mail receipts.


Individuals who are seeking debt relief can be a major target for scammers. If someone reaches out to you with an offer of student loan forgiveness or mortgage help — even if they claim to be a government agent or a representative of your lender —they are likely trying to ensnare you in a scam for money.

If you’re contacted by someone offering debt relief, proceed with extreme caution. You should always contact your lender directly to confirm the legitimacy of the offer. Make sure to look up reviews of the so-called debt relief company, too.

Here are some major red flags to look out for:

  • Demand for payment up-front (which is illegal)
  • Guarantees that your debt will be forgiven
  • Refusal to send information in writing
  • Pressure to sign documents, especially blank documents
  • Requiring untraceable payment methods, such as wire transfers, gift cards or cryptocurrency

If you suspect you’ve been targeted by a fake debt relief company, be sure to file a fraud report with the FTC.

Mistakes to Avoid When Paying Off Debt

If you’re under stress due to debt, you may be tempted to find a quick solution. Unfortunately, most quick solutions can cause even bigger financial problems. Here are some common, expensive mistakes consumers make when they’re looking for immediate relief from debt:

  • Prioritizing unsecured debt over secured debts. Creditors may try to convince you that their account is the most important one to pay. In reality, you should prioritize debt payments according to your own needs. If you have to choose, try to stay current on your secured debts, including your mortgage and auto loan, since falling behind could mean losing your property.
  • Signing over a title. Title loans might come with low interest rates, but they also put you at risk of losing your property if you continue to face financial instability in the future.
  • Ignoring the terms. If you open a new loan or credit card, without taking time to understand the rate and fees, you’ll likely end up increasing the amount of debt you owe.
  • Borrowing from retirement. Between fees and tax penalties, taking out a loan against your retirement can cost you big-time. Plus, you’ll have less cash available when you retire.

Getting Help with Debt Relief

When you’re looking for help with debt, you have a lot of options to consider. From working with your lenders, to applying for special programs or taking legal action, there’s no shortage of avenues to pursue.

But before taking any action, the best starting place is to carefully weigh your choices. Take a look at our list of pros and cons to determine the best two or three options based on your financial situation.

Of course, you don’t have to figure it out alone. A professional counselor can offer you tailored advice, answer your specific questions and even enroll you in a debt management plan. And the best part is that their credit counseling is free.

About The Author

Bill Fay

Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].


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