From huge credit card balances to unpaid medical bills and beyond, debt can seriously impact your life. If you don't have the credit score to qualify for a personal loan that can help you consolidate or refinance debt, it may feel like you have few good options.
In some cases, however, you might want to consider a type of debt relief. Here’s what you need to know about your options and how to decide when it’s worth pursuing.
When debt relief makes sense
Debt relief is a broad term that refers to many different approaches. You could potentially eliminate your debt completely by declaring bankruptcy, you could negotiate directly or indirectly with creditors to pay back a reduced amount, or you could be eligible for reduced fees and/or interest rates through a debt management program.
In general, it makes sense to consider debt relief in the following situations:
- You have significant consumer debt that you're struggling to pay back.
- You’ve already cut your expenses and don’t have any extras to eliminate from your budget.
- You aren’t able to boost your income.
- You have no realistic expectation of being able to pay off your debt within five years.
If you’ve come up with a detailed budget, done everything you can to save money, and tried to increase your earnings and still can’t make ends meet — debt relief may be the best option for you. When it comes to debt relief programs, there are three different ways to tackle your balances.
1. Debt management plans
If you have too much debt or are unable to repay your debt, a credit counseling agency may recommend that you pursue a debt management plan (DMP). With this approach, a certified credit counselor reviews your finances and develops the DMP. Each month, you send payments to the credit counseling agency, and they use them to pay your creditors on an agreed-upon schedule.
As part of the DMP, the agency may negotiate with creditors to waive certain fees or lower your interest rates. A DMP requires you to make regular, on-time payments, and you may make payments for several years. As part of the DMP, you may have to agree to close your accounts and not apply for new ones.
2. Debt settlement programs
With debt settlement, a company works on your behalf to convince your creditors to accept a reduced settlement instead of the full balance you owe. For example, according to Accredited Debt Relief clients pay 68% to 75% of enrolled debt upon successful completion of the program. If you had $30,000 in consumer debt, that means you’d repay just $20,400 to $22,500.
That may sound amazing, but the Consumer Financial Protection Bureau warns that debt settlement can be risky.
While the settlement process is underway, the debt settlement company will typically tell you to stop making payments to your creditors. During this time, late fees, penalty charges, and interest will continue to accrue, and your credit score can be severely damaged. You could even end up in more debt than you started with.
Debt settlement companies typically charge high fees for their services. For example, the fee for National Debt Relief is 18% to 25% of your enrolled debt. And, the program can take up to four years to complete — if negotiations are successful. It's possible the debt relief company might not reach a successful negotiation. But they can only legally charge you if they have successfully negotiated your debt.
If a company can successfully settle your debt, the debt settlement savings may make those fees and drawbacks worth it, but you should carefully consider your options before pursuing it.
3. Bankruptcy
If you’ve exhausted your other options, declaring bankruptcy may make sense, but it has lasting consequences.
When you declare bankruptcy, the court will review your situation. If it agrees that you’re unable to repay your debt, it will issue a court order discharging the debt (Chapter 7) or you'll be subject to a repayment plan for three to five years (Chapter 13) — after successfully completing it, your debt will be discharged. That typically means you’ll no longer owe money on your credit cards, medical bills, or personal loans.
The automatic stay
One of the immediate benefits of filing either type of bankruptcy is the automatic stay. Your creditors are required to stop all collection efforts. You won’t receive any more harassing phone calls or letters in the mail, and bill collectors can’t garnish your wages.
However, bankruptcy has serious consequences. Bankruptcy information can stay on your credit report for up to 10 years and can make it difficult to get credit, buy a home, or even qualify for life insurance. Plus, the bankruptcy process can be expensive.
If you decide to pursue bankruptcy, you must get credit counseling from a government-approved organization within six months before you file. You can find a list of eligible programs on the U.S. Trustee Program website.
Learn More: Debt Consolidation vs. Bankruptcy: How To Choose
3 times you shouldn’t pursue debt relief
If you lost your job or went through a medical emergency, debt relief can be incredibly helpful and give you the breathing room you need to get back on your feet. However, it’s not appropriate for everyone. Here are three situations where debt relief doesn’t make sense.
1. You haven’t reached out to creditors yet
If you can’t afford your payments, reach out to your creditors right away — this should be your first step. Student loan servicers, personal loan lenders, and even credit card companies sometimes have hardship programs, where you can make reduced payments or qualify for a lower interest rate.
Contact your creditors directly and explain your situation, saying what you can afford to pay and what kind of help you need. You may qualify for temporary programs that don’t cost you anything.
2. You can repay your debt within five years
If you can pay off your debt within five years by cutting expenses or working a side hustle, debt relief may not be necessary for you. You can work with a nonprofit credit counseling agency to develop a budget and get personalized advice to tackle your debt so you can pay off your balances without paying extra fees or damaging your credit.
To find a reputable credit counseling agency, check with your state Attorney General and local consumer protection agency.
3. You’re eligible for debt consolidation
If you’re dealing with debt, but still have good enough credit, you may be able to tackle your balances with debt consolidation. With this approach, you take out a personal loan or complete a balance transfer to lower the interest rate on your debt. With a lower rate, more of your payment goes toward principal rather than interest, helping you save money and get out of debt faster.
Credible allows you to compare interest rate estimates from multiple personal loan lenders at once.
Getting the help you need
Dealing with debt can be an exhausting experience, but debt relief may be able to help you through it. Before pursuing any debt relief program, make sure you do your homework to ensure you choose a path that works best for your finances and your goals.
More resources:
![The Complete List of Student Loan Forgiveness Programs [2025]](https://cdn.credible.com/content-images/fb72205c-8537-41ce-af3c-81cd53ac7df3?width=254&height=168&pixel_ratio=1)
