Types of Debt Relief

If you’re struggling with debt, it’s important to understand the different options available to help you get back on track. Debt relief can help reduce, settle, or manage your debt, making it easier to regain control of your financial situation.

Here’s an overview of the types of debt relief programs that can help you reduce or eliminate debt:

Debt Settlement


What is Debt Settlement?
Debt settlement is a process where you work with a company or professional to negotiate with your creditors to settle your debts for less than you owe. Typically, you stop making payments to creditors and instead deposit money into a special account managed by the debt settlement company. Once enough money has been saved, the company negotiates with your creditors to settle your debt for a lower amount.

How it Works:

  • You stop making payments to creditors.
  • A debt settlement company helps you negotiate reduced settlements.
  • You pay a lump sum or a reduced amount to settle the debt.
  • After settling, you resume regular payments to creditors or close the accounts.

Pros:

  • Can significantly reduce the total amount owed.
  • Works best for large, unsecured debts like credit cards.

Cons:

  • Can negatively impact your credit score.
  • Debt settlement programs typically take several years to complete.
  • Creditors may not agree to the settlement.

Debt Consolidation


What is Debt Consolidation?
Debt consolidation involves combining multiple debts into a single loan or payment. This simplifies managing your debts, as you only need to make one monthly payment instead of multiple ones. With debt consolidation, you may also qualify for a lower interest rate, which can make paying off the debt more affordable.

How it Works:

  • You take out a consolidation loan to pay off your existing debts.
  • You make one monthly payment towards the new loan.
  • It could be a personal loan, home equity loan, or a balance transfer credit card.
  • The new loan may have a lower interest rate than the original debts.

Pros:

  • Simplifies payments by combining multiple debts into one.
  • Lower interest rates, if you qualify.
  • Can be faster to pay off debt with a single, manageable loan.

Cons:

  • You may need good credit to qualify for a lower interest rate.
  • If you use a secured loan (like a home equity loan), your property could be at risk.
  • Doesn’t reduce the amount of debt you owe — it just reorganizes it.

Credit Counseling


What is Credit Counseling?
Credit counseling is a service where a counselor helps you understand your financial situation and creates a plan to pay off your debt. A credit counselor can help you manage your budget, negotiate with creditors, and provide strategies to get out of debt. Some credit counseling agencies also offer Debt Management Plans (DMPs), which involve working with creditors to set up a structured payment plan.

How it Works:

  • A certified credit counselor reviews your financial situation and creates a budget.
  • The counselor negotiates with creditors on your behalf to reduce interest rates or waive fees.
  • You follow a Debt Management Plan (DMP) to pay off debt in a structured way.

Pros:

  • Professional guidance on budgeting and debt management.
  • Can help reduce interest rates or fees through negotiations with creditors.
  • Suitable for people who want to pay off debt without taking drastic measures like bankruptcy.

Cons:

  • Does not reduce the total amount of debt.
  • Some counseling services may charge fees.
  • May require you to close credit accounts or reduce your spending, which can be challenging.

Debt Management Plan (DMP)


What is a Debt Management Plan (DMP)?
A Debt Management Plan (DMP) is a structured plan where a credit counseling agency works with your creditors to create an affordable payment plan for you. The agency collects your payments and distributes them to your creditors. While a DMP doesn’t reduce the amount you owe, it helps you repay your debts faster by potentially lowering interest rates and waiving fees.

How it Works:

  • A credit counselor assesses your debts and finances.
  • The counselor sets up a DMP that consolidates your debts into one monthly payment.
  • You make monthly payments to the counseling agency, which distributes them to your creditors.
  • Creditors may agree to reduce interest rates or fees.

Pros:

  • Simplifies debt repayment with a single monthly payment.
  • May reduce interest rates and fees.
  • It can help you avoid bankruptcy.

Cons:

  • It doesn’t reduce the total debt amount.
  • Requires you to commit to a structured payment plan.
  • You may be required to close accounts or stop using credit.


Bankruptcy


What is Bankruptcy?
Bankruptcy is a legal process that allows individuals or businesses to eliminate or reorganize their debts under the protection of the court. It is typically considered a last resort due to its long-term impact on your credit and finances. There are different types of bankruptcy (Chapter 7, Chapter 13), depending on your situation.

How it Works:

  • You file a petition in bankruptcy court.
  • The court reviews your financial situation and either discharges or reorganizes your debts.
  • Chapter 7 (liquidation) allows most unsecured debts to be discharged, while Chapter 13 (reorganization) involves setting up a repayment plan to pay off your debts over time.

Pros:

  • Can eliminate unsecured debt (Chapter 7) or reduce payments (Chapter 13).
  • Provides immediate relief from creditor collection efforts and lawsuits.

Cons:

  • It can severely impact your credit score.
  • Stays on your credit report for 7–10 years.
  • Some assets may be liquidated to pay off creditors (Chapter 7).

Which Type of Debt Relief is Right for You?


The right debt relief option depends on your financial situation and goals. If you're struggling with overwhelming credit card debt, debt settlement might help reduce the amount you owe. If you just need a way to simplify payments, debt consolidation might be a good fit. If you want professional guidance on how to manage your finances, credit counseling could help.

If none of these solutions work for you, or if you’re facing serious financial difficulty, bankruptcy may be a last resort to consider.


Need Help Choosing the Right Debt Relief Company?


If you’re ready to take the next step but unsure which company to choose, we’ve researched and reviewed the top debt relief providers to help guide your decision. We recommend Pacific Debt Relief as the number one option due to their strong track record and personalized services.

Frequently Asked Questions

  • What is debt relief?

    Debt relief helps reduce or restructure your unsecured debt through negotiation or repayment plans.

  • How do I qualify for debt relief?

    Most programs require $ 10 K+ in unsecured debt and evidence of financial hardship.

  • Will this affect my credit score?

    It may be in the short term, but many people rebuild stronger credit after completing a relief program.

  • Is it better to work with a company or go DIY?

    A company can handle creditor negotiations for you, saving time and stress, especially if you have large balances.

Legal & Disclosure Section

Disclosure:

This site features advertisements from debt relief providers. We may receive compensation if you click a link or complete a form. All reviews are based on a mix of editorial analysis and advertiser partnerships. DebtCompanyReviews.com is not a debt settlement provider or financial advisor.


Program Terms Disclosure:

Results vary and are not guaranteed. Not all debts are eligible for settlement. Program length and savings depend on your financial situation and enrolled debts. Fees are typically a percentage of enrolled debt and are only charged after results are achieved. Read each provider’s terms carefully.