Key takeaways

  • Debt settlement, debt management plans and debt consolidation are among the most popular debt relief options.
  • If you work with a credit counselor to create a debt management plan, ensure it’s with a non-profit counseling agency.
  • You can consolidate debt through a 0 percent APR credit card or a debt consolidation loan.

Debt relief describes the process of reorganizing your debt to make the monthly payments more manageable. There are multiple relief options to choose from, including consolidation, settlement, bankruptcy and even debt forgiveness.

Debt relief can be done by yourself or with the help of an outside agency. While working with an agency can help you make the best decision for your finances, each debt relief method is best for different circumstances and comes with unique drawbacks and advantages.

Much like the debt itself, the relief option you choose will impact your finances down the road. Read through each method and carefully consider the pros and cons to minimize further credit damage or debt accrual.

Debt consolidation

Debt consolidation takes place when you move two or more of your existing debts into one new debt, typically with the help of a product like a debt consolidation loan or a balance transfer credit card. This means that you’ll still owe the amount you started with, but instead of making multiple payments, you’ll only need to make one fixed monthly payment.

Consolidation is a common route for most borrowers, as there are numerous benefits and minimal risks, regardless of whether you choose to take out a new loan or opt for a 0 percent APR credit card.

Pros of debt consolidation

Cons of debt consolidation

  • The 0 percent APR periods on balance transfer cards don’t last forever and will often come with high variable interest rates.
  • Consolidation doesn’t eliminate or make progress toward paying down your debt. 
  • Fees such as balance transfer or origination fees on debt consolidation loans can apply.
  • You need good or excellent credit to qualify for loans with the best rates and terms.

Debt settlement

Debt settlement is a process that lets you settle large amounts of debt for less than you owe, and it is offered through for-profit debt settlement companies. Typically, these programs ask you to stop paying your creditors as they negotiate your debt with them.

Debt settlement is inherently risky. Creditor’s aren’t required to work with debt settlement agencies and could deny the negotiations altogether. If this happens, your credit will have taken a massive hit (as you stopped making payments), and you’ll be left with the same amount of debt.

If the creditor agrees to the settlement company’s negotiation, you’ll make the payments to the debt company directly in a specified account rather than paying the creditor. While the companies take much of the heavy lifting off your shoulders, the services come at a price.

Settlement fees differ depending on the company but will typically range around 15 percent to 25 percent of the settled debt amount. Keep in mind that settlement companies can also charge you for the amount settled and will never ask you for an upfront fee.

Pros of debt settlement

  • May be able to settle your debt for less than you originally owed. 
  • Don’t have to communicate with creditors directly. 
  • Could pay off your debts sooner than you would otherwise.

Cons of debt settlement

  • Creditors are not legally required to settle for less than you owe.
  • Stopping payments on your bills (as most debt relief companies suggest) will damage your credit score.
  • Debt settlement companies can charge fees.
  • If over $600 is settled, the IRS will view this debt as a taxable income

Debt forgiveness

There are some scenarios where a creditor will ultimately forgive the debts you owe, although these instances are increasingly rare. This process will look differently for every debt owed but will almost always start with a debt settlement or credit counseling agency.

For example, if you’re looking to get your credit card debt forgiven, you’ll need to connect with a third-party agency. However, if you’re just looking to have a few medical bills forgiven, you may be able to bypass working with an agency by contacting the hospital’s financial department.

Many hospitals offer medical debt forgiveness programs to individuals who have a lower income. This is often called charity care, and while there’s a limited amount of funding available per institution, charity care funding has been increasing across the nation. According to the American Hospital Association, all hospitals’ median charity care spending rose by 13 percent from 2021 to 2022.

Pros of debt forgiveness

  • Get some or all of your debt completely forgiven.
  • Save money and interest.
  • End collection calls and activity.

Cons of debt forgiveness

  • Forgiveness is rare and often depends on your type of debt.
  • You typically need a very low income to qualify.
  • Debt forgiveness is often a long and grueling process. 

Credit counseling

Credit counseling agencies are organizations that help make your monthly debt expenses more manageable. There are both for-profit and nonprofit agencies across the nation, but you’ll want to go with a nonprofit.

Nonprofit counseling agencies are known to charge lower fees than for-profit agencies, with some offering the services for free. For-profit counseling is offered by debt relief companies and may charge higher rates.

These companies — especially nonprofit — will work with you to help get your finances in order. You’ll be assigned a counselor to look at your current debts and income to curate debt management plans tailored to your monthly budget. Since the counselors are professionals in debt management, they can also offer up suggestions on various debt relief strategies and programs that best fit your needs.

Some agencies also offer long-term financial health assistance and immediate debt management services, like free training and workshops that can help you improve your relationship with money.

Pros of credit counseling

  • Services can be free or low cost.
  • Get debt management advice tailored to your specific debts and finances. 
  • Access resources that promote immediate and long term financial health. 

Cons of credit counseling

  • Credit counseling typically isn’t free, although fees vary.
  • Not all credit counseling agencies are reputable, so you’ll have to do your research.
  • Credit counseling doesn’t eliminate or pay back your debts. 

Debt management plan

In some cases, credit counseling companies also recommend and oversee debt management plans. These plans have you make a single payment to an account in your name each month, and the credit counseling agency uses this money to pay bills on your behalf. With debt management plans, the company will also work with your creditors to negotiate lower interest rates and more preferential terms.

Like working with any third-party relief company, creating a management plan could devastate your credit score, and creditors aren’t required to work with your counselor.

Pros of debt management plans

  • Simplify your finances with just one debt payment to make each month.
  • Get third party help creating a debt payoff plan.
  • Potential to save money and get out of debt faster.

Cons of debt management plans

  • Debt management plans require you to stop using credit cards.
  • Most plans last between three to five years. 
  • These plans are not free and the fees can be steep.


Bankruptcy should be considered as a last resort when other debt relief options won’t work. It’s a long process, isn’t guaranteed and has long-term negative impacts on your credit score. However, bankruptcy can be helpful as it provides a break from creditors and may result in forgiven debt.

There are two main types of bankruptcy — Chapter 7 and Chapter 13. Both types of bankruptcy can help you discharge certain types of debts so you can get a fresh start.

Chapter 13 bankruptcy lets people with stable incomes keep property like a home or car while repaying some other debts over three to five years. Meanwhile, Chapter 7 bankruptcy provides a single discharge of all debts and the liquidation of most property.

Pros of bankruptcy

  • Get relief from overwhelming amounts of debt.
  • Stop collection calls and harassment.
  • You may be able to keep your home or a car.

Cons of debt bankruptcy

  • Bankruptcy goes through the court systems, and it can be rather costly.
  • Bankruptcy stays on your credit report for 10 years and causes considerable damage to your credit.
  • Not all debts qualify for bankruptcy, such as federal student loans.