What Is a Debt Relief Program?

A debt relief program is a method for managing and paying off debt. It typically involves hiring a debt relief company to employ one or more strategies that help you get debt under control, such as by reducing the amount you owe, lowering your interest rate, or securing better terms.

Learn how debt relief programs work and whether they may be right for you.

Key Takeaways

  • Debt relief programs can help you manage and pay off your debt.
  • Debt relief companies typically charge fees for their services, which can include negotiating with creditors for debt settlement.
  • Debt settlement provides new terms, often with a reduced balance.
  • Debt settlement can stay on your credit history for up to seven years and negatively impact your credit score.
  • You can also manage debt by consolidating debts into a new one with better terms.

How a Debt Relief Program Works

Each debt relief program works differently to help you pay down or reduce your debts more quickly and reduce the amount you owe. Generally, you would hire a debt relief company for a fee or work with a nonprofit credit counseling firm to try to adjust your debt so that making payments is easier for you.

Methods for adjusting your debt can include:

  • Reducing interest rates
  • Waiving fees
  • Extending loan terms
  • Consolidating debts
  • Refinancing loans 
  • Reducing the amount owed

Types of Debt Relief Programs 

You can find debt relief through a variety of strategies, including debt settlement and debt management plans (DMPs).

Debt Settlement

Debt settlement refers to an agreement between the debtor and the creditor in which the creditor accepts a lesser amount as full payment of the debt. Typically, you will need to already be delinquent in paying your bill for a creditor to consider a debt settlement.

Debt settlement has risks to consider. The bill could be turned over to a collection agency, which will engage in collection calls and possible legal action. Also, missed payments can harm your credit score, and it could take years to repair. In addition, you could receive a tax bill for any forgiven amounts because the Internal Revenue Service (IRS) considers that amount as income.

Be aware of the risks with debt relief companies. The Consumer Financial Protection Bureau (CFPB) warns consumers that debt relief programs could have hefty fees and may not be able to settle all of your debts. Your debt could potentially increase.

Debt Management Plans

Another common debt relief program tool is a debt management plan (DMP), which is a longer-term solution that requires monthly payments. The credit counseling agency will then distribute the payment to your various creditors based on the terms of the DMP.  As part of the DMP, the credit card companies may reduce your interest rate and/or waive any fees.

Under a DMP, you likely will need to close all of your credit card accounts, which can damage your credit score. Living without credit cards can be a challenge for many people.

DIY Debt Relief

If you are committed to paying off your debt and are a good negotiator, you can perform many of the same services provided by a credit counseling agency or debt relief program. For instance, you can review your finances, debt, and income to create a budget. Then you can contact your creditors—credit card companies, lenders for personal loans, the hospital or doctor’s office, etc.—and discuss your options for paying your debts.

Creditors often have their own departments for helping individuals to pay their debts. They may set up a repayment plan, reduce the amount owed if paid within a specific time frame, waive fees, extend the loan terms, and so on. However, you must be dedicated to adhering to the terms you negotiate. If you fail to make payments as agreed, the creditors could halt any assistance and demand full payment of the debt. 

Alternatives to Debt Relief Programs

If you want to avoid the cost of debt relief programs or don’t want to negotiate new terms with your current lenders, you can consider alternatives. Credit counseling and debt consolidation can help you reduce debt, while filing for bankruptcy can clear your debt completely. Each way of managing high debt loads has pros and cons to consider.

Credit Counseling

Credit counseling means you will meet with a credit counselor to go over your finances, including your budget, income, and debt. Once a counselor has reviewed your information, they can help you create a budget that helps you manage your debt.

When searching for a credit counselor, consider starting with nonprofit credit counseling agencies, many of which offer free services. Check with the National Foundation for Credit Counseling (NFCC) and the Financial Counseling Association of America (FCAA) to ensure that the credit counseling agency is accredited and that the counselor has the proper certifications. 

Debt Consolidation

With debt consolidation, you roll all multiple debts into one new loan that typically has a lower interest rate or lower monthly payment. You could use a debt consolidation loan, which combines several different debts such as credit card balances, medical bills, and personal loans into one loan payment.

Debt consolidation loans usually charge fees such as loan origination fees, but the fees could be worth getting the long-term savings on interest. Calculate how much you would save and compare it to the fees.

You could also combine several credit card balances into one with balance transfers. Some credit cards offer a 0{d0229a57248bc83f80dcf53d285ae037b39e8d57980e4e23347103bb2289e3f9} introductory annual percentage rate (APR). You could transfer your high-interest credit cards to a new one, if you qualify.

Using a 0{d0229a57248bc83f80dcf53d285ae037b39e8d57980e4e23347103bb2289e3f9} interest rate credit card does have risks to consider. If you do not pay off the balance before the promotional period ends, you will have to pay the normal interest rate on the card. You may also have to pay balance transfer fees when you move the balances.

So, it’s important to calculate how much you will pay with a new card vs. carrying your original balances.


If you have no way to repay your debts, filing for bankruptcy could be a viable solution. Through bankruptcy, your assets are liquidated to pay off your debts (Chapter 7) or you create a payment plan to your creditors (Chapter 13).

Chapter 7 could be a good choice for those with unsecured debt such as credit cards, personal loans, and medical debt. However, you may have to sell off some assets to help pay creditors. With Chapter 13, it’s possible to keep assets if you adhere to the repayment plan.

Rules for protecting assets vary by state on what is and is not exempt from a bankruptcy. You can consult with a bankruptcy attorney to determine which type of bankruptcy may be the best choice for your situation.

Is a Debt Relief Program Right for You? 

Some people can benefit from debt relief programs, while others will find them not as helpful. Here are some factors to consider if you are deciding whether to pursue a debt relief program.

When Debt Relief Programs Can Be Beneficial

  • You’re making minimum monthly payments, yet your balance increases
  • You’re behind on payments
  • You’re already being contacted by collection agencies
  • You have to decide between paying creditors and buying groceries
  • You’re facing vehicle repossession or home foreclosure

When Debt Relief Programs Are Less Beneficial

  • If the statute of limitations has passed on your debts, you may not be legally required to pay it.
  • If you receive certain government benefits or live on a fixed income, you may be judgment proof, meaning collection agencies can’t enforce any lawsuit judgment against you.

Pros and Cons of Debt Relief Strategies

Evaluate the pros and cons of various types of debt relief strategies to help you choose one that fits your needs.

Program Pros Cons
Credit Counseling Many nonprofits offer free services You are responsible for following the advice/plans
Debt Consolidation • Could reduce the amount of interest paid
• Make one monthly payment
• Could incur hefty balance transfer fees if using credit card
• Loans could incur origination or other fees
Debt Management Plan • Make one monthly payment
• Could reduce the interest rate
• Will have to close all credit card accounts
• Could harm your credit score
DIY Debt Relief • Don’t have to pay fees for assistance
• Don’t have to close any accounts that would affect your credit score
• Must be dedicated to paying off your debt
• Cannot take on new debt until current debt is paid 
Debt Settlement Could eventually pay off your debts  • May take months for settlement to begin
• Not making payments will greatly harm credit score
• Could accrue much more debt in form of fees/penalties
• Creditors may refuse to work with debt settlement company  
Bankruptcy • With Chapter 7, could be relieved of all debts
• With Chapter 13, could enter repayment plan
• Stays on credit report up to 10 years
• Will lower credit score
• Could forfeit assets for liquidation

How do you qualify for debt relief?

Many programs have no qualifications other than having debt. However, in some cases, you may need to have a minimum level of debt to qualify. You will likely have to pay a fee for debt relief services.

Is it worth using a debt relief program?

A debt relief program can be beneficial if you receive better terms and pay as agreed. Whether a debt relief program will be right for you will depend on your personal financial circumstances. Consider consulting a professional financial advisor for specific guidance on your options.

Can I do debt relief myself?

You can handle your own debt relief, but it can take time and the discipline to follow a payment plan. You can negotiate with creditors on your own, but you may not be as successful as a professional who is more experienced at dealing with creditors.

The Bottom Line 

If you are struggling with debt, a debt relief program can provide the assistance you need to pay your creditors. However, not every debt relief program is right for every individual, so it’s important to research each program to find one that could be helpful to you.