How to Get Debt Relief and Pay Your Bills

Turbo Takeaways

Household debt in 2024 was $17.94 trillion, led by mortgage, student loans, and credit card debt.
In Q3 of 2024, credit card balances rose to a high of $1.17 trillion.
The average American carries a credit card balance of $6,380.

Dealing with Debt

If you're struggling with financial burdens from debts like student loans, credit cards, a mortgage, or personal loans, you're not alone. Rising costs for essential living expenses and a fluctuating economic environment have left many Americans feeling overwhelmed.

Thankfully, consumers can pursue a variety of debt relief options to manage and repay large unsecured balances. Keep reading to learn more about how debt relief works and determine the best option for your individual circumstances.

What Is Debt Relief?

Debt relief is a strategic approach to paying off debt balances using professional assistance. Several strategies, such as negotiating with creditors to reduce debt or consolidating multiple balances into a single payment, make debt easier to manage.

Debt relief programs can help you in several ways, such as:

Reducing the interest rate you pay
Securing favorable terms on a loan
Negotiating for a reduction in the principal amount owed
Shortening or extending repayment terms
Having penalties or fees waived

Finding the right debt relief program depends on the kind of debt you carry, your financial habits, and your income. While there are several types of debt relief programs, the goal is always the same: to help you regain control of your finances and live debt-free.

When To Look For Debt Relief

Consider looking into debt relief as soon as you realize there’s a problem. The sooner you take action, the easier it is to overcome debt. It's also important to examine any financial habits that might create more debt while you're working hard to eliminate current balances.

Debt relief is an effective option if:

You're having trouble managing your current debts
You're struggling to make monthly payments on your debts
You're carrying a balance on one or more credit card accounts
You're behind on student loan payments.

It's also important to consider the type of debt you carry. Debts are broken into two categories: secured and unsecured. Only unsecured debt is eligible for debt relief. Let's take a closer look at the two types of debt:

Secured debt is debt that is tied to an asset, such as your home or your car. In case of missed payments, creditors can seize the asset.
Unsecured debt is debt not tied to an asset and thus typically carries higher interest rates. Examples of unsecured debt include credit cards, medical bills, and personal loans.

Teresa Dodson, debt expert and founder of Greenbacks Consulting, offers her opinion on using debt relief. “If you are buried in debt, it's a great option to provide you with some additional cash flow and get you out of debt at the same time,” Dodson shares.

Credit Card Debt

Credit card debt is the second-largest source of debt after mortgage debt. If you have maxed out credit cards, you may want to consider a credit card debt relief program or a similar option.

To qualify, you may need to meet certain requirements, including:

Higher credit scores (to open a new low-APR consolidation loan or a balance transfer credit card)
Income review (to determine if you're eligible for debt relief or bankruptcy)
Higher debt amounts ($10,000 or more for certain debt relief programs)

Debt Relief Programs

Depending on what you currently owe and the types of debt you carry, a variety of debt relief programs could help you overcome outstanding balances.

You can try to tackle debt on your own or leverage the expertise of a debt relief company. Here's a closer look at some of the most common debt relief options available:

Debt Consolidation

Debt consolidation involves combining multiple debts into one. This can be done through a debt consolidation loan or a balance transfer credit card. With debt consolidation, you'll make only one debt payment each month.

A debt consolidation company can help you combine all your debts into a single loan at a lower interest rate. This means you'll save a considerable amount of money as you pay off your debts. Repayments are easy and straightforward because you will only be dealing with a single monthly payment.

Opening a zero-interest balance transfer credit card is also an option for consolidating moderate credit card balances. As long as you pay off your balance within the introductory period, you may find it effective to eliminate debt without incurring additional interest.

Debt Settlement

Debt settlement is a viable option when you're facing overwhelming debt and are past due on credit cards or other unsecured accounts.

Settlement involves negotiating with creditors to settle your total debt for less than what you currently owe. You’ll need to save enough funds to make a lump sum settlement and close your account once the lender accepts your offer.

Using a professional debt settlement company like TurboDebt® simplifies the debt relief process. You'll benefit from the expertise of debt relief experts, creating a customized plan that includes monthly debt payments and support to help you reach your financial goals.

Using a professional debt settlement company like TurboDebt® simplifies the debt relief process.

Debt Management Plans

Debt management plans (DMPs) allow you to enroll debts in a program and make a monthly payment to a debt management organization. Once the organization receives your funds, it distributes the money among your various creditors.

With a DMP, you don't have to open a new balance transfer credit card or take out personal loans. You'll send a payment large enough to cover debts each month. Credit counselors who oversee a DMP can also negotiate lower interest rates or waived fees to make debt repayment easier.

Credit Counseling

Credit counseling is a viable solution for discussing your finances and exploring options for getting out of debt. Certified credit counselors can offer you sound financial advice and help you decide on the best course to relieve various debt burdens.

Once you connect with a credit counselor, you'll discuss your credit history, current debts, income, and spending habits to better understand your needs and create financial goals. Many nonprofit credit counseling organizations offer affordable services to assist consumers. Some agencies also provide free or reduced services for those facing economic hardship.

What Credit Counselors Do

Credit counselors offer advice and provide financial education. They also oversee debt management programs through private or nonprofit organizations.

Bankruptcy

Bankruptcy is considered a last resort for dealing with debt. After exhausting other means of debt relief, consider filing for either Chapter 7 or Chapter 13 bankruptcy.

Chapter 7 bankruptcy involves selling assets to pay creditors under the direction of a regional bankruptcy court. However, Chapter 7 doesn't eliminate certain debts such as student loans, back taxes, or child support payments.

In Chapter 13 bankruptcy, most of your debts are paid back over the course of a three to five-year payment plan based on what you can afford.

If you're thinking about filing for bankruptcy, consider the potential benefits and drawbacks:

Pros

Eliminates most debts
Provides a legal framework for debt relief
Gives you a new start financially

Cons

Won't eliminate student loans
Legal fees can reach up to $10,000 for complex cases
Negatively impacts your credit history for up to 10 years

Bankruptcy is a legal process that requires a few months to complete, and it's always wise to speak with a bankruptcy attorney to determine if it's the right option for you. While bankruptcy can have a major impact on your credit report, it may be the best available solution in certain cases.

Did You Know?

To choose the most effective debt relief option, determine how much debt you have to pay off, how much of your income you can put toward repayment, and how quickly you want to end your debt.

Debt Forgiveness

Debt forgiveness or debt cancellation programs are rare and generally offered to a very select group through government programs. When available, this option can help you significantly lower or erase certain debts. However, you'll need to meet certain qualifications to be eligible for debt forgiveness programs.

Based on your individual circumstances, you may be eligible for debt forgiveness programs that allow partial or complete cancellation of debt, such as the Public Service Loan Forgiveness Program. This program is available for government employees who've made a specific number of payments on certain loans.

Do-It-Yourself Debt Relief

Reducing your debt balance and interest rate requires discipline and planning. However, if you can create a detailed plan to reduce your debt, negotiate with your creditors, and stick to a payment plan, you may find success navigating the process on your own.

Start a DIY debt relief plan by contacting your creditors and explaining your circumstances. Some credit card companies offer financial hardship programs and may be willing to waive fees and lower interest rates.

You can also negotiate a debt settlement with your creditors on your own, making a lump sum payment to end your debt. However, the complexity of this process makes it easier to complete with the help of a reputable debt relief company.

Additional DIY options, like debt snowball and debt avalanche, provide a structure for managing payments and eliminating debts based on the amount you owe.

Did You Know?

Use the debt avalanche method to eliminate debts with the highest interest rate first, and the snowball method to pay off debts from smallest to largest.

How Your Credit Score Is Affected by Debt Relief

Debt relief can impact your credit scores, depending on what your score was to begin with, and which debt relief option you choose. For example, your credit scores may already be affected if you are behind on monthly payments or if your utilization rate is maxed out.

Debt management plans and credit counseling typically have no or minimal impact on your credit. These programs may also help you improve your credit score if you can reduce your debts and make timely payments once you have created a new repayment plan.

Debt settlement plans typically cause your credit score to drop while you're on the program. However, you can often pay off debt faster and also build your score back after clearing debt and making consistent, on-time payments.

It's a good idea to monitor your credit scores regularly to keep track of any changes. All three major reporting bureaus offer a free credit report at least once a year.

How Much Does Debt Relief Cost?

Typically, debt settlement companies charge 15% to 25% of the debt they settle as fees. The fee is calculated on the enrolled debt, which is the amount of debt that you have when you enroll in the program. This fee cannot be charged until you have settled your debt.

Debt settlement can sometimes be the cheapest way to get out of debt, depending on how much you owe, your account’s standing, and other factors.

Upon completion, you may see savings of 30% on your original debt, including fees. In many cases, you may also be able to save up to 50% on your original debt before fees.

There may also be tax costs associated with debt settlement. Generally, forgiven debt is considered to be taxable income by the IRS. However, if you can demonstrate that you are insolvent, you may not have to pay the required taxes. The IRS will typically consider you insolvent when your total liabilities are more than your total assets.

When it comes to credit counseling, services are very affordable and can range from $25-$50 for monthly monitoring. If you want to get a more detailed overview of your finances, you can also work with a counselor for $75+/hour.

With a more in-depth review of your finances and the help of a credit counselor, you may be able to reduce your interest rates to about 9% on average.

Beware of Debt Relief Scams

Whether you are interested in debt management plans, credit counseling, or other debt resolution programs, it is important to ensure that the company you choose to work with is legitimate to avoid being a victim of a scam.

We recommend checking the Consumer Financial Protection Bureau to see if there are any complaints registered against a debt relief company. Then, verify the reputation and reviews of the company at the Better Business Bureau (BBB).

Be aware of red flags, such as companies demanding fees before the services are offered, lack of transparency, and requests for access to your personal information. Learn more about identifying and avoiding debt relief scams to protect yourself from fraudulent practices.

Before you enter into any agreement, ensure that you understand the fees that you will need to pay, the tax implications, and how the creditors are being paid.

Get Your Debt Under Control With Debt Relief Programs in Your State

Now you know that there are many types of debt relief plans available. The next step is to connect with an accredited debt relief company to discuss your unique circumstances and come up with a customized repayment plan.

Take a look at state-specific debt relief programs and start your journey towards a debt-free life today:

Everything You Need To Know About Debt Relief