Key takeaways

  • There are many different forms of debt relief including debt settlement, debt management plans and debt consolidation products.
  • Each approach to debt relief has benefits and drawbacks
  • Finding the right option will depend largely on your situation and ability to make payments.

The term “debt relief” describes a range of ways you can get out of debt with the help of a third party. Some debt relief companies offer debt settlement services, whereas others focus on offering debt management plans (DMPs), credit counseling or other alternatives. There are also debt consolidation products you can use to work your way out of debt, although these options require you to figure out a debt repayment plan without any outside help.

The type of debt relief that’s right for you depends on how dire your situation is with debt, your ability to make payments and how much work you’re able to put in. Before deciding, consider all the debt relief options available, how they work and their pros and cons.

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 your debt doesn’t go away, and that you still owe the amount you started with. However, there are some advantages that come with debt consolidation whether you do it with a new loan or a credit card with 0 percent annual percentage rate (APR).

Pros of debt consolidation

Cons of debt consolidation

  • Introductory 0 percent APR offers on balance transfer cards don’t last forever, and high variable interest rates apply thereafter.
  • You are moving debt around, but start the process owing the same amount.
  • Fees can apply, such as balance transfer fees or origination fees on debt consolidation loans.
  • 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 bills and begin depositing money in a savings account you’ll use to negotiate debt later in the process.

The debt settlement company will attempt to settle your debts for you once you have enough money built up, but their services aren’t free. Debt settlement companies typically charge a fee that adds up to 15 percent to 25 percent of the settled debt amount.

Pros of debt settlement

  • Settle your debts for less than you owe.
  • Get help resolving your debts.
  • Pay off 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.
  • Not all debt settlement companies are reputable, so you’ll have to do your research.

Debt forgiveness

There are some scenarios where a creditor will ultimately forgive the debts you owe, although these instances are increasingly rare.

A common example of this is medical debt forgiveness programs from hospitals, also called charity care. Charity care made up 1.4 percent of hospital operating costs in 2020, according to the Kaiser Family Foundation (KFF), although the amount of debt forgiveness afforded by each facility varied.

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

  • Debt forgiveness is rare.
  • You typically need a very low income to qualify.

Credit counseling

Credit counseling agencies are typically nonprofit organizations that charge low fees. These companies will work with you to come up with a plan to manage your debts and bill payments, and they can make suggestions on various debt relief strategies and programs to try. Credit counseling agencies also offer free training sessions and workshops that can help you improve your relationship with money.

Pros of credit counseling

  • Services can be free or low cost.
  • Get help creating a plan for your debts and your finances.
  • Learn how to create a budget and live within your means.

Cons of credit counseling

  • Credit counseling isn’t free, although fees vary.
  • Not all credit counseling agencies are reputable, so you’ll have to do your research.
  • You still owe the same amount of money, and it’s your job to pay it all off.

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.

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.
  • Can take two years or longer to complete.
  • These plans are not free, and fees can vary.


Bankruptcy should be considered as a last resort when other debt relief options won’t work, mostly due to the long-term impacts to your credit score. 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.
  • Get help from a third party when you feel completely overwhelmed.

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.
  • You may still have to repay some of your debts.

How to choose a debt relief plan

Debt relief pros and cons can vary widely depending on the debt relief method you choose. For example, you’ll face a different set of issues if you opt for debt settlement than you will if you start a debt management plan.

With that in mind, you’ll want to look over this list of debt relief options to find the right fit. If you have a solid history of employment and a steady income, it’s possible debt consolidation could provide the relief you need while getting you on the path to debt freedom.

Likewise, debt settlement, debt management plans and credit counseling are good options for people who can pay off some debts but could benefit from outside help. Bankruptcy is a last and final option to consider, but only when you have so much debt that nothing else will work.

Alternatives for debt relief

If none of these debt relief options feel like a good fit, you have options to help get back on track financially.

Some of the additional avenues to consider include balance transfer credit cards, a home equity loan or home equity line of credit (HELOC) or a cash-out refinance.

If you have a relatively small amount of debt, a balance transfer credit card can be a good choice. This approach involves transferring the debt from other credit cards to a single card with a 0 percent interest rate. Balance transfer credit cards typically offer 0 percent interest for a limited introductory period, such as 12 to 21 months. To make the most of this strategy, the debt you’re transferring should be fully paid off before the 0 percent intro period ends. Once that period elapses, you’ll have to pay a standard credit card interest rate on whatever balance remains, which can be costly.

Both a home equity loan and a HELOC involve borrowing against equity you may have built up in your home. These two products differ slightly, however. A home equity loan is an installment loan with fixed monthly payments. The proceeds from this type of loan could be used to pay off the balances of your other debts, combining them into one loan. A HELOC is similar to a credit card. It is a line of credit that often comes with a variable interest rate. Money from a HELOC can also be used to consolidate debt. However, in both cases, if you fail to repay the money borrowed, you put your home at risk.

A cash-out refinance involves replacing your current mortgage with a new one. The balance of the new mortgage however, is larger than your current mortgage balance and the difference between the two loans is paid out to you in a lump sum of cash. The money you pulled out can then be used to pay off debt.