Debt relief programs: pros and cons

There are many debt relief methods, each with its own advantages and disadvantages

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If you're struggling with debt and have been looking for a way out, you’ve probably seen the term "debt relief" thrown around. The thing is, “debt relief” isn't a singular, specific debt strategy. Instead, it's a broader term that describes various methods you can use to negotiate, settle or pay off debt.

With this in mind, it's not surprising that each debt relief method has its share of pros and cons. You'll want to compare debt relief methods carefully to find the right option for you based on how much debt you have and your current financial situation.

Key insights

  • There are four main debt relief methods: debt management plans, debt settlement, debt consolidation and bankruptcy.
  • Debt management plans and debt consolidation can help your credit score over time, but debt settlement and bankruptcy have the opposite effect.
  • Before you choose a debt relief method, find out how long it will take, whether there will be damage to your credit and how much you'll have to pay in fees (if anything).

What is debt relief?

The most common solutions to help consumers get out of debt include debt management plans (DMPs), debt settlement, debt consolidation and bankruptcy, says Leslie H. Tayne, Esq., a financial attorney and the founder of Tayne Law Group, which focuses on providing solutions for consumer and business debtors.

Each of these strategies is suitable for consumers with a specific debt profile, but each also comes with a range of downsides, including damage to your credit score and fees charged by the third-party companies that oversee the debt relief programs.

The key to finding debt relief that works for you is understanding each method, what it involves and the type of consumer it's best for. For example, if you have a fairly small and manageable amount of debt to pay off, you’ll choose a different method than someone drowning in debt and already in default on most of their bills.

» MORE: How do debt relief companies work?

Debt management plans

DMPs help consumers get back on track with their debts. These plans have you make a single monthly payment to a credit counseling agency, which in turn uses the funds to pay bills for all the unsecured debts you owe in a given month.

Companies that facilitate these plans also work on your behalf to negotiate with creditors for lower interest rates and waived fees. This can help you pay off your debt faster and save you money.

A ConsumerAffairs reader from Minnesota said a DMP helped him eliminate “nearly $30,000 in high-interest credit card debt” while also lifting his credit score close to the excellent range.

“I was able to do it in under five years and without declaring bankruptcy,” he said. “I now am debt-free except for a mortgage, which I'm paying extra on each month. My credit score is almost 800. I'm starting to build an emergency fund, and I'm saving for retirement. It feels good to finally be free.”

That said, DMPs carry fees and can take 48 months or longer to complete. You may also have to agree to stop using credit completely while in the plan, which can be difficult or even a dealbreaker for many.


  • An advocate will work on your behalf. Credit counseling agencies that facilitate DMPs will try to get you lower interest rates and better terms, all while providing you with one-on-one support.
  • Your credit score can improve. Unlike some other debt relief options, DMPs can help improve your credit as on-time payments are made on your accounts.
  • You’ll make a single monthly payment. DMPs let you make a single monthly payment instead of juggling multiple payments each month.


  • DMPs have fees. These plans are generally affordable, but they’re not entirely free. Fees can vary by company and may be based on the state you live in.
  • Only certain types of debts can be enrolled. Secured debts like auto loans and mortgages don't work with DMPs. Neither do student loans, even though they're unsecured.
  • You can't use credit during the plan. You have to agree to stop using credit cards for the duration of the plan.

» COMPARE: Best debt management plans

Debt settlement

Debt settlement is a process offered by for-profit companies that work on your behalf to help you settle debts for less than what you owe.

With this kind of plan, you may be advised by the debt settlement company to stop making your debt payments while the company prepares to negotiate. Instead, you’ll make a single monthly payment to an account during this time with the goal of using these accumulated funds for debt settlement later.

Debt settlement programs typically take 24 to 48 months to finish, although timelines vary based on how much debt you have. Also, be aware that fees apply, and these fees typically equal between 15% and 25% of the total debt amount you owe.

While these fees can certainly add up, some people consider the cost worth it for the peace of mind of not having to negotiate on their own. For example, one of our readers in California said of their debt settlement experience: “Overall, I did save a lot of money. Fees take away some of that, but the creditors were off my back.”


  • You’ll have one monthly payment. Instead of making multiple payments each month, you make a single payment to the debt settlement account.
  • You can save money. If successful, debt settlement lets you settle debts for less than the original amount owed.
  • You may get out of debt faster. Debt settlement typically takes 24 to 48 months, whereas paying off debt the old-fashioned way can take significantly longer.


  • Debt settlement is risky. Creditors aren't required to let you settle, meaning you could end up owing late fees and more interest. Also, Tayne says that creditors can still sue you for nonpayment.
  • Your credit score can take a hit. Your credit score could worsen if you stop making payments to creditors.
  • You'll owe taxes on the forgiven amounts. Debt forgiven through debt settlement is considered taxable income, so you'll owe on the difference between your settlement amount and what you originally owed.

» COMPARE: Best debt settlement companies

Debt consolidation

You may be able to consolidate debt with a debt consolidation loan and then pay it all off over time. Loans in this category are typically unsecured personal loans that let you borrow a lump sum of money upfront to pay off creditors. From there, you typically pay the money back with a set monthly payment amount and a fixed interest rate that’s hopefully lower than what credit cards charge.

However, you may need to do some shopping around to find a suitable rate, especially if your credit falls in the fair or poor range. A ConsumerAffairs reader from Texas said he was quoted interest rates of 20% or more by some debt consolidation lenders before finally finding one with an affordable rate.

It's also common for people to use home equity loans for debt consolidation since they also come with fixed interest rates and fixed monthly payments. However, home equity loans require a significant amount of equity in a property (you typically can’t borrow more than 80% to 90% of the home's value in total), and you have to use your home as collateral for the loan. This means that if you fail to repay the loan funds you borrow, you put your home at risk of foreclosure.


  • Make just one monthly payment. A debt consolidation loan lets you pay off all your other debts and make just one payment each month.
  • Save money on interest. Interest rates on debt consolidation loans tend to be significantly lower than credit card interest rates.
  • Improve your credit score. Paying off revolving credit balances and making on-time payments on a new debt consolidation loan can help your credit.


  • You won't have third-party help. Using a debt consolidation loan means you won't have help from a credit counseling agency or a debt settlement company.
  • You'll need good credit to qualify. The best rates and terms for debt consolidation loans go to individuals with substantial incomes and good or excellent credit.
  • You may need collateral. Some debt consolidation loans require collateral, including home equity loans, which require you to use your home's value to secure the loan.

» COMPARE: Best debt consolidation loan companies


You should only consider filing for bankruptcy if you have seemingly insurmountable debt and none of the other debt relief methods seem viable.

There are two main types of bankruptcy for consumers: Chapter 7 and Chapter 13. Both need to be filed in federal bankruptcy court, and both require several hundred dollars in filing fees, with the potential for attorney fees on top of that.

The Federal Trade Commission notes that Chapter 13 bankruptcy lets debtors avoid losing important property, including a home with a mortgage or a car. It then gets debtors on a debt repayment plan that can last for three to five years.

Meanwhile, Chapter 7 bankruptcy liquidates all of a debtor’s assets that aren’t exempt and uses funds from the liquidation to pay back some creditors. A debtor’s obligations to repay most types of debt are eliminated with a Chapter 7 bankruptcy discharge.


  • Reorganize and repay debts with Chapter 13 or get a "clean slate" with Chapter 7. You can choose which type of bankruptcy fits your needs based on your financial situation and the assets you want to protect.
  • You may be able to keep some of your assets. You may be able to keep your home and a car. Even Chapter 7 bankruptcy lets you keep exempt assets like work tools, basic home furnishings and cars in most cases.
  • Some debts can be gone for good. Once bankruptcy is discharged, the remaining debts can be wiped away permanently.


  • Bankruptcy can be costly. Court filing fees and attorney fees required to file for bankruptcy can add up quickly.
  • You may lose important assets. Chapter 7 requires you to give up assets that may be important to you. Chapter 13 lets you keep items of value, but Tayne says the three- to five-year repayment plan you have to agree to can feel "grueling and never-ending."
  • Your credit score will sustain considerable damage. Bankruptcy stays on your credit report for up to 10 years. Tayne says you may struggle to qualify for any type of credit during that time.

» COMPARE: Best debt relief companies

Could your debt be reduced or forgiven? Take our financial relief quiz.


    What does “debt relief” mean?

    Debt relief is a term used to describe various methods consumers can use to get out of debt. These typically include DMPs, debt settlement, debt consolidation and bankruptcy.

    How can I get relief from debt?

    You may be able to get debt relief by signing up for a DMP or debt settlement service. Debt consolidation loans can also make debt repayment easier to manage and less costly overall.

    How does debt relief affect your credit?

    The debt relief method you choose will determine the impact on your credit score, for better or for worse. For example, DMPs and debt consolidation loans can improve your credit score when you make all payments on time. On the other hand, debt settlement and bankruptcy damage your credit score because you stop making payments to creditors as they progress.

    Bottom line

    Debt relief comes in many different forms, and the right option for you can depend on how much debt you have, the kind of timeline that’s manageable for you and how willing you are to pay back all the money you owe.

    Before you choose any of the debt relief methods outlined in this guide, make sure you understand the pros and cons, what you have to gain and what you might be giving up.

    Article sources
    ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
    1. Federal Trade Commission, " How To Get Out of Debt ." Accessed Sept. 14, 2023.
    2. Federal Trade Commission, " Home Equity Loans and Home Equity Lines of Credit ." Accessed Sept. 14, 2023.
    3. Consumer Financial Protection Bureau, " What is a personal installment loan? " Accessed Sept. 14, 2023.
    4. Federal Reserve, " Consumer Credit - G.19 ." Sept. 14, 2023.
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