My FICO logo $$$$$$$$$$$ 9876 5432 1234 5678 CREDIT CARD KELLY SMITH 11/26 My FICO logo
SCORE
Skip Navigation
  • Why FICO
  • How It Works
  • Pricing
  • Education
  • Community
  • Support
  • Member Dashboard
  • Log In Log Out
  • Start Plan
 
  • Why FICO
  • How It Works
  • Pricing
  •  
  • Education
    • Credit Education
    • Credit Scores
    • What Is a FICO Score?
    • FICO Scores vs Credit Scores
    • FICO Scores Versions
    • New FICO Scores
    • How Scores Are Calculated
    • Payment History
    • Amount of Debt
    • Length of Credit History
    • Credit Mix
    • New Credit
    • How to Improve Your Score
    • How to Build Credit
    • Credit and Financial Counseling
    • Credit Reports
    • What's in Your Report
    • Credit Bureaus
    • Inquiries
    • Errors on Your Report?
    • Blog
    • Calculators
    • Loan Savings
    • Vehicle Payments
    • How Much Can I Borrow?
    • Should I Consolidate My Credit Cards?
    • Know Your Rights
    • Identity Theft
    • FAQ
    • Glossary
  • Community
  • Support
  • Member Dashboard
  • Log In Log Out
  • Our Products
    • Ongoing Credit Monitoring Track your FICO® Score & identity
    • One-time Credit Reports Be prepared for important transactions
  • How Can We Help
    • Monitor Credit & Identity
    • Mortgages
    • Credit Cards
    • Auto Loans
  • Credit Education
  • Community
  • Support
  • Our Products
    • Ongoing Credit Monitoring Track your FICO® Score & identity
    • One-time Credit Reports Be prepared for important transactions
  • Credit Education
  • Credit Scores
    • What Is a FICO Score?
    • FICO Scores vs Credit Scores
    • FICO Score Versions
    • New FICO Scores
    • How Scores Are Calculated
    • Payment History
    • Amount of Debt
    • Length of Credit History
    • Credit Mix
    • New Credit
    • How to Improve Your Score
    • How to Build Credit
    • Credit and Financial Counseling
  • Credit Reports
    • What's in Your Report
    • Credit Bureaus
    • Inquiries
    • Errors on Your Report?
  • Blog
  • Calculators
    • Loan Savings
    • Vehicle Payments
    • How Much Can I Borrow?
    • Should I Consolidate My Credit Cards?
  • Know Your Rights
  • Identity Theft
  • FAQ
  • Glossary

Estimate your FICO® Score range

Answer 10 easy questions to get a free estimate of your FICO® Score range

Estimate for Free

Get your FICO® Score for free

90% of top lenders use FICO® Scores

Get Access Now
No credit card required
View all Financing & Loans articles

What is Debt Relief?

Debt relief is a program or service that may help you get out of debt, usually by reducing your payments or canceling a portion of your balance due.

Photo by Pixabay on Pexels

As consumer debt rises to all-time highs, more Americans are searching for debt relief programs to help deal with debt. Debt relief broadly refers to a variety of options for managing your debt, including consolidating and settling your debts. Each option has benefits and drawbacks, so careful consideration is important to choosing the best approach for your debt.

Debt relief firms

Debt relief firms, also called debt settlement firms, aim to reduce your overall debt by asking creditors to accept a lower lump sum payment. If they agree, any remaining balance is canceled.

Accounts typically need to be past due before a debt relief firm can negotiate for you. They'll ask you to stop paying your creditors and make payments to a separate account instead. Once you've saved up enough to make a settlement offer, the company will negotiate on your behalf and pay the settlement if the creditor accepts the offer.

In exchange for their services, debt relief companies typically charge 15 to 25 percent of the total debt you have enrolled. You'll only be charged after a debt has been successfully settled.

There are some risks to working with a debt relief service:

  • Not all debts can be settled, specifically secured debts like a mortgage or auto loan.
  • Since settlement offers are made on delinquent accounts, you may incur late payments and experience a FICO® Score decrease.
  • Creditors aren't obligated to agree to settlement offers. Some may choose not to work with your debt relief company.
  • Settling debts may come with tax implications since canceled debts may be considered income.

Debt management plan

A debt management plans, or a DMP, is a service offered by credit counseling agencies. Under a debt management plan, you'll make a single monthly payment to the credit counseling agency, who then distributes payments to your individual creditors.

The debt management may include better terms—a lower interest rate or lower minimum payment. You'll still repay your full outstanding balance, but the goal is to make your payments more manageable.

Credit counseling agencies may charge a small fee for their services but should offer reduced fee options if you have low income. Since you won't be allowed to use credit cards until you complete the debt management plan, you'll have time to kick bad debt habits to the curb.

Debt consolidation

Debt consolidation combines multiple debts into a single balance with a debt consolidation loan credit card balance transfer. Instead of having to split your payments among several creditors, you'll have just one payment to make. However, since you'll need to qualify for a new loan or credit card, debt consolidation is a better option if you have good credit.

Consolidating could be more expensive if your debt consolidation loan interest rate is higher or your repayment stretches over a longer timeframe. Paying off your credit card balances also frees up your credit limits, which could tempt you to fall into a trap of spending again.

Emergency debt relief for natural disasters

If you live in a declared disaster area, you may be eligible for a low-interest rate disaster loan from the U.S. Small Business Administration (SBA). FEMA works with the SBA to provide loans to help cover damaged items or to prevent future damage. If you qualify, the loan can help you pay down debt you took on to recover from the disaster.

Many credit card issuers and lenders also offer payment assistance after a natural disaster. Your options will vary depending on the creditor but may include temporary decrease or suspension of your monthly payments. Contact your creditors directly to get information about your options and to apply.

Bankruptcy

Bankruptcy legally removes your liability for certain debts. Under the most common form of bankruptcy, Chapter 7 liquidation, most unsecured debts can be erased. That includes credit card debt, personal loans, and medical debt.

If you need to save a home from foreclosure or your income is higher than the median for your state, you can file Chapter 13 bankruptcy. You'll enter a three to five year repayment plan after which remaining unsecured debts are discharged.

Because it's extremely damaging to your credit, bankruptcy is often considered a last resort option. It may be worth consulting with a bankruptcy attorney if you think bankruptcy may be a possibility.

Which Debt Relief Option is Best?

To compare debt relief options, consider the amount and type of debt you have as well as how far behind you are. Limiting damage to your FICO® Scores is important, but you also have to choose an option you can afford and stick with for several years. Before signing up for a service, ask for a free consultation to help guide your decision.

Get your FICO® Score from FICO, for free. No credit card required.

Image of LaToya Irby, financial writer with 14+ years of experience.

LaToya Irby

LaToya Irby is a financial writer with over 14 years of experience. She's been quoted and published as a credit expert in several major publications including USA Today, U.S. News and World Report, TheBalance.com, and The Chicago Tribune.

Estimate your FICO® Score range

Answer 10 easy questions to get a free estimate of your FICO® Score range

Estimate for Free

Get your FICO® Score for free

90% of top lenders use FICO® Scores

Get Access Now
No credit card required

Page footer

Products

  • Home
  • Why FICO
  • How It Works
  • Pricing

Learn

  • Education
  • Community
  • Support
  • Blog

Company

  • About Us
  • Terms of Use
  • Cookie Preferences
  • Privacy Policy
  • Affiliate Program
  • Accessibility

Get Our App

  • Download iOS app on the App Store
  • fil_get
    Get Android app on the Google Play Store

Follow Us

  • Twitter
  • Facebook
  • Instagram

Credit Education

  • Credit scores
  • What is a FICO Score?
  • FICO Score versions
  • How scores are calculated
  • Payment history
  • Amount of debt
  • Length of credit history
  • Credit mix
  • New credit
  • Credit reports
  • What's in your report
  • Bureaus
  • Inquiries
  • Errors on your report?
  • Calculators
  • Know your rights
  • Identity theft
  • FAQ
  • Glossary

Copyright ©2001- Fair Isaac Corporation. All rights reserved.

IMPORTANT INFORMATION:

All FICO® Score products made available on myFICO.com include a FICO® Score 8, and may include additional FICO® Score versions. Your lender or insurer may use a different FICO® Score than the versions you receive from myFICO, or another type of credit score altogether. Learn more

FICO, myFICO, Score Watch, The score lenders use, and The Score That Matters are trademarks or registered trademarks of Fair Isaac Corporation. Equifax Credit Report is a trademark of Equifax, Inc. and its affiliated companies. Many factors affect your FICO Scores and the interest rates you may receive. Fair Isaac is not a credit repair organization as defined under federal or state law, including the Credit Repair Organizations Act. Fair Isaac does not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit record, credit history or credit rating. FTC's website on credit.