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Debt Relief Programs: How They Work and Which One is Right for You

Are you struggling to handle your loan payments each month and falling further into debt?

In such a situation, several debt relief programs are available to make the process easier to handle. Of course, the duration, interest rate, and altered outstanding balance will depend on the specific type you choose. So, you need to research your debt relief program options and apply for your preferred plan with the help of experienced debt relief experts.

So, which program should you try out? Learn about your options here.

Debt Relief: What is it and how does it work?

So, what is debt relief?

When people cannot pay their outstanding balance promptly, their debt increases with time. In this context, debt relief is a helpful method to adopt. It involves restructuring a debtor's owed amount for a more straightforward repayment process.

  • Lowered interest rates
  • Reduction of the total debt balance owed
  • Extension of the repayment timeline
  • Consolidating several debts into one (with a lower interest rate)

For the most part, many creditors go along with the debt relief efforts their debtors take up. For example, borrowers falling behind on their payments may ask for time extensions or settle their debt partially instead of skipping all payments continuously. Accepting these proposals is more beneficial for them than getting a full default from their borrower.

However, the debt negotiation phase can become complex. So, working with professional debt settlement companies to handle this process and monitor your selected strategies is best.

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Types of Debt Relief Programs

Different debt relief options are available for debtors to adjust their debt to the creditors under debt relief services. The professional debt management experts will suggest the best plan for you based on various factors, like your financial condition at the time, the number of missed payments, your credit score, etc.

Here are the leading debt relief program types to try.

Bill Payment and Budgeting

First, you can take certain intentional measures to get out of debt. You can practice budgeting to plan your expenses for the priority costs first. To specify, a person typically intends their expenditure within a specific period, calculating their ordinary expenses against their expected income.

To elaborate, keep a percentage of your monthly salary to pay utility bills, medical bills, etc. Then, allocate a portion to food and other household expenses, a part for your debt payments, etc. This will help you follow the bill payments on schedule and avoid any unnecessary purchases.


  • It is better suited for regularly managing each monthly payment for bills, personal loans, credit cards, etc.
  • Easily track your spending habits and average monthly expenditure, allowing you to make more informed decisions in the future.
  • Multiple digital apps are available for easier budgeting.


  • Difficult to handle for individuals with compulsive buying tendencies.
  • It is incredibly time-consuming.

Best For:

  • People who want to balance their budget on their own without professional help.
  • Those with fewer existing debts can use this relatively slow method and expect long-term financial security.

Debt Management

One of the most notable debt relief programs for debtors is debt management. This works for people who tend to overspend but are on the verge of/are already in debt. They may need a better plan to manage their monthly payments for all unsecured debts and can complete the transactions afterward.

You can get professional credit counseling help from a non-profit credit counseling organization. They can guide you with budget planning to avoid falling further into debt. These credit counseling agents will help you arrange a suitable debt management plan, negotiating with creditors for lower rates or adjusted repayment periods.


  • You might develop a habit of budgeting, which is beneficial long-term.
  • People struggling to pay off high-interest personal loans, credit cards, etc., can use this method.
  • Debt management plans are simple to follow to improve the financial situation.
  • It gives you a chance to improve your credit score.
  • You are safe from formal insolvency after using this program.


  • Creditors may reject a debt management plan if you handle the negotiations independently.
  • It mostly works with secured debts.
  • You have to use only one credit card for emergencies while using this plan and cancel the rest.

Best For:

  • People who have a reliable income source to make payments consistently.

Debt Consolidation

Borrowers who want to eliminate their many existing debts can opt for the debt consolidation method. You can consolidate the debt into one instead of making multiple monthly debt payments. Then, you can pay off the debt in monthly installments from your savings account at lower interest rates than the original debts.

Typically, it can be difficult for borrowers to pay off multiple monthly debts with high interest. For example, a person who has both mortgage and credit card bills to pay off will struggle to make monthly payments for both. Therefore, the person might pay off only the monthly minimum payments. But that can increase the total debt over time, as the interest rates keep compounding.

Consequently, debt consolidation loans are helpful for debtors; they get numerous debts consolidated into one. The debt relief company you consult with will pay off the outstanding debt to the creditors. Then, as the debtor, you will pay off the company loan in small quantities per month at one unified interest rate.

The loan repayment duration will extend since you have to pay off the balance due in smaller amounts per month. However, the slow and steady repayment schedule is simpler to follow, which makes up for the length of repayment time.

People can try out different techniques under this process, like getting a debt consolidation loan or opting for a balance transfer card. The kinds of debts you can pay off using these methods are credit card debt, medical debt, or student loan debt.


  • Easily create one credit account to merge the debts owed from different sources at a lower interest rate on average.
  • While your credit score will drop during the repayment period, this is only temporary; your score will increase after you complete all payments.
  • Make a set payment monthly.
  • You can save money in the long term if you complete all due payments on time.


  • Your root problem with debt will remain.
  • It can backfire if you miss out on any monthly payment.

Best For:

  • People with multiple debts have high-interest rates, like credit card debt.
  • It works for debtors with low credit scores.

Debt Settlement

If you lose most of your money or source of income, the best solution is debt settlement.

With a debt settlement program, you, as the borrower, can pay off less of what you owe to the creditor. But first, you have to show proof of your dire financial condition, like lack of employment. Then, the creditor may approve you only partially to fulfill the entire loan balance payment. Of course, this depends on getting approval from the creditor to settle the debt to a smaller amount and canceling the leftover balance.

For this process, get the help of a reliable debt settlement company. While you can negotiate for debt settlement directly with the creditor, it is riskier since they can still refuse. On the other hand, trained professionals from debt settlement companies have more experience and valid credentials. So, creditors may take a debt settlement negotiation from them more seriously.

The overall debt settlement procedure is relatively fast. Most applicants get their primary account settlement within 4-6 months after the process starts. This is according to an extensive American Fair Credit Council (AFCC) report. The organization works closely with the regulatory Federal Trade Commission for debt settlement-related regulations.

It is important to mention that creditors can decide to report the forgiven debt to the IRS if the forgiven amount is $600 or higher. Then, they will consider it taxable income, i.e., you must pay the taxes for the partially forgiven balance, except for legally exempt cases.

Additionally, you need to pay a service fee to the debt settlement company for their help with the negotiations. This fee can be as much as 15-25% of the settled balance- which you still must pay.


  • If the creditor approves, you will have to pay only part of the outstanding credit balance.
  • Debtors resolve their existing debts faster with the debt settlement method than others.
  • You can avoid harassment from continuous debt collection calls.
  • A bad credit score cannot stop you from filing for a debt settlement program.
  • You can save yourself from bankruptcy.


  • Taxes will apply to the leftover amount of your settled debt if it exceeds $600.
  • It can further harm your credit score.

Best For:

  • Borrowers who have missed multiple payments and are now at risk of legal action can opt for debt settlement.
  • Debtors with an already low credit score can apply for this method.

Credit Card Consolidation

Credit card consolidation is a sought-after debt relief solution. As the name suggests, this applies to people struggling to pay off their credit card bills. They can merge the balance from multiple credit cards and pay that off per month with a lower interest rate. Two types of credit card debt relief methods are available: getting a balance transfer credit card or applying for credit card consolidation loans.

In the case of the former, the debtor can transfer all the balance from multiple credit cards into one card at 0% APR for a set period. On the other hand, one can take a new loan to complete all outstanding debt payments at fixed intervals. The interest rate that applies to this credit card consolidation loan is comparatively lower than the individual credit card payments.

On the other hand, credit card consolidation loans work for people who have multiple credit cards, but struggle to pay off the monthly dues. Instead, they take out this loan to pay off the dues to the creditors first, and then slowly pay off the loan amount at lower interest rates.

Alternatively, you can opt for a debt consolidation program. This is not the same as a debt consolidation loan. This method focuses on making the debt repayment process more manageable for the debtor.

Professionals from debt consolidation companies you consult will negotiate with your creditors for you. They will ask the creditors to reduce your monthly interest rate, increase your repayment period, or even forgive additional fees, if applicable, so that you can comfortably pay off the full debt. Then, based on the updated repayment plan, you have to pay to the program, which will get forwarded to the creditor.

Moreover, reach out to professional credit counselors from non-profit credit counseling agencies. They will sit with you to review your financial situation and factors like credit score, payment history, existing debts, etc. Then, they will help you plan a payment plan that is more manageable for your current financial condition.


  • Get low or 0% introductory APR for credit card debt relief.
  • Stretch the repayment duration over a long period.
  • It is easier to pay off your debt through a credit card consolidation loan or balance transfer card than to pay off each credit card debt individually.


  • The interest rate will increase to a high APR after the introductory period expires.
  • Debtors may have to pause credit card bill payments while debt settlement companies negotiate the terms; this increases the total owed.

Best For:

  • People with multiple credit card payments pending at high interest can benefit from this method.
  • It is suitable for people who can complete monthly payments consistently.

Credit Card Settlement

If you cannot pay off your credit card debt due to a bad financial situation, e.g., losing your job, you can opt for a credit card debt settlement method. Many creditors might agree with your offer and accept a partial payment. But you should have patience and let them consider the terms of the offer. Some might outright refuse your settlement offer. In that case, hiring a professional debt settlement company is helpful here. They can negotiate the settlement terms better with creditors and professional debt arbitrators.

Remember that using this method may take a hit on your credit score. Also, you cannot use the card after finalizing the settlement plan, as the account shuts down permanently.


  • You need to pay a smaller balance compared to the original debt amount.
  • You can avoid falling into bankruptcy.
  • You can eliminate your debt quicker with this debt relief process.


  • Your forgiven debt is taxable under IRS guidelines.
  • The debt settlement companies charge service fees and other payments you must pay.

Best For:

  • It works if you have exhausted all the other debt management plans first.

Payday Loan Consolidation

Payday loan consolidation is an excellent solution to handle short-term payday loans at affordable rates. You can merge your multiple payday loan dues into one bill and pay off that amount in installments at a lower interest rate over a set period. This assures a simpler repayment experience. Multiple debt consolidation options are available for the payday loan type with 36% APR or lower. Thus, people with low credit scores can still apply for it and pay reasonably low monthly amounts.


  • Only pay off the set monthly amount.
  • It is less costly, including the fees.
  • On-time payments will help fix your credit score later.


  • If you miss even one monthly payment, that can seriously hamper the whole payday loan consolidation process.
  • Eligibility for plans with low rates is limited.

Best For:

  • Individuals struggling to control their spending and want a more structured method to pay off payday loans can benefit here.

Payday Loan Settlement

Payday loan settlement works the same way as traditional debt settlement methods, just specifically focused on payday loans. You can expect zero or reduced interest rates on your payday loan amount. In simpler words, you can pay off half of the due payday loan and the rest is forgiven.

Debt settlement companies help with the negotiation process, although debtors can handle this on their own too. However, the negotiations for the settlement terms can get tricky. So, taking professional support from a verified debt settlement company is recommended here.


  • Reduce your stress about meeting each monthly payment on paydays.
  • Expect zero lawsuits or collection calls after settlements.
  • Finish the debt payment immediately since you must pay only a partial amount.


  • Creditors will report the forgiven amount to the credit bureaus, which will stay on the credit report for multiple years.
  • Some creditors can contact your employer for debt repayment.

Best For:

  • People who do not have a steady income and cannot meet the payday due dates on time can opt for loan settlement.

Medical Bill Consolidation

People struggling to pay many hospital bills can use the medical bill debt consolidation method. This involves combining all costs into one bill and getting a personal loan to pay it off. Then, you must complete monthly payments with the accrued interest over time to repay the loan.

It is important to note that this is a precarious way to handle medical bill payments since you cannot account for unforeseen emergent situations that can increase healthcare costs.

For example, it is impossible to predict the occurrence of sudden health complications that require medical attention and testing. In such a case, you need to pay off the cost of these additional tests on your own while also fulfilling monthly payments. Thus, consult with financial experts from a trusted debt relief company to know alternate options.


  • It breaks down the total medical bill, visitation, and other related costs into set monthly payments.
  • You can slowly pay off the total amount in small manageable installments.
  • Accessible to borrowers who have low credit as well.


  • You must complete all the monthly payments to keep you from returning to point zero, as interest rates will keep increasing.
  • Paying off the total amount with additional interest rates takes a long time.

Best For:

  • It works for people with multiple high-cost hospital bills who have an adequate long-term source of income available.

Medical Bill Settlement

Medical bills can increase to very high rates over time, depending on the type of treatment procedure, medications, duration of hospital stay, etc. So, people opt for health insurance to handle all costs. Reportedly, 91.7% of US citizens have health insurance, as per a 2021 survey. However, there are limited affordable options present.

So, many people do fall into medical debt after going through major healthcare procedures or getting in-patient service at expensive hospitals. The medical debt settlement method also works if the payments are too high and you cannot pay them off. Healthcare providers can sometimes agree to reduced payments to avoid cost delays.


  • You can quickly go debt free with this method.
  • Pay off a portion of the total medical bill after negotiations are complete.
  • You can avoid falling into bankruptcy.


  • There is no guarantee that medical practitioners will agree to the terms.
  • Debt settlement companies ask for fees for their service, which you still have to pay besides the settlement amount.

Best For:

  • People with high medical costs from surgeries who lack the funding to pay the total bill on time can use this method.


You can file for bankruptcy if other debt relief programs fail. This works for both secured and unsecured debt types. However, debtors with secured debt that file for bankruptcy would still lose their collateral. Also, it would be best to remember that certain payment types do not fall under the bankruptcy chapters. Examples include governmental debts, like penalties/fines, alimony payments, child support, etc.

During this process, it is also mandatory to receive credit counseling from a verified non-profit agency. The credit counselor will assess your financial condition and check if other options, like debt consolidation, are still viable.

Besides that, consulting with accredited financial lawyers is necessary, who will help with the bankruptcy filing process. Depending on your situation, you can opt for either Chapter 7 bankruptcy or Chapter 13 bankruptcy. Consider this as the last-ditch effort to get out of debt. You should proceed with this step only if you have already tried all other debt relief methods, e.g., debt management.


  • People with deficient credit scores can file for bankruptcy.
  • You are free from debt collection calls after availing of this option.
  • It completely wipes your owed debt.


  • Most lenders will avoid giving new lines of credit or personal loans after bankruptcy.
  • Filing for bankruptcy badly crashes the credit score.

Best For:

  • People who cannot pay off their existing debts at all can file for bankruptcy.
  • Debtors with either secured or unsecured debt can opt for this method.
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Beware of Scams with Debt Relief

For help with debt relief services, hiring professionals from reputable debt relief companies is the best solution. In fact, there are multiple options for such agencies available that you can contact online. However, some debt relief scam organizations have saturated the industry, making the process difficult for many.

The scammers pose as debt relief experts and promise to help clients get rid of debt at low-interest rates. Additionally, they target people with heavy credit card debt, promising to help them settle with their creditors. For their service, they charge a high up-front fee. After an unsuspecting victim falls for the trap and pays the cost, the scammers break all contact without completing their promised service.

Notably, the Federal Trade Commission has taken legal measures to stop such schemes and authorized multiple guidelines to protect consumers. On your part, you should be more cautious when choosing debt relief agencies. Here are some tips to avoid debt relief scams:

  • Research the program details, fees, and the organization itself thoroughly.
  • Check if the debt settlement company is accredited by verified regulatory boards, like the International Association of Professional Debt Arbitrators or the AFCC.
  • Debt relief companies take around 15-25% of the owed debt balance during settlement cases as fees. Check if the agency you are interested in working with is open about its process of operations and pricing details.
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Yes, it is possible for you to personally handle the debt relief work, like contacting creditors and lenders for debt management. You can discuss adjustments to your preexisting repayment terms and interest rates. Many lenders show leniency when borrowers directly come forward to discuss their issues with meeting their loan obligations instead of defaulting on the loan. However, it is better to rely on professional help from debt settlement companies for options like debt settlement.

The FICO credit score considers the debtor's payment history, among other factors. So, specific debt relief programs like debt settlement programs negatively affect the score if you stop paying your monthly dues.

The best debt relief companies typically charge around 15-25% of the sum debt balance of the debtor for their service. In the beginning, they do offer free consultations.

Debtors opting for a debt settlement program typically have to pay around half the outstanding debt amount. So, having a significant amount of funds available is important to pay off this partial amount to the creditors.

After a debtor misses their payment due date, the lender tries a few attempts to contact them. If many months pass since the initial contact, the creditor can pass the communication to a debt collection agency. It is essential to mention two additional points here:

  • Some lenders may not wait some months before giving the case to collection agents.
  • Bill information that typically doesn’t appear in credit reports, e.g., house rent, medical costs, etc., will appear in the credit report after the lender passes it to collection agencies.

To avoid such actions, informing the lender of your financial situation before reaching this point is best. For example, if you lose your job and need more time to pay off your personal loans.

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