Is Debt Relief a Good Idea?

With the U.S. average household debt reaching $17.80 trillion in Quarter 2 of 2024, more consumers are deferring payments to charge essentials like housing, food, and utilities on a credit card. Many Americans are looking for ways to stop the endless cycle of interest fees and unpaid balances from making minimum payments.

As medical insurance prices continue to increase, many Americans are struggling to pay outstanding healthcare bills, while others are stuck paying off personal loans used to defer other costs. Consumers need ways to overcome growing debts, and debt relief may be the most effective option to regain financial control.

Debt relief gives consumers options to reset their finances by paying off large balances. Nonprofit and private companies offer programs for individuals struggling with unsecured debts like credit cards, medical bills, and personal loans. Secured debts like a mortgage or car loan require complex financial restructuring that’s handled by a lender instead of a debt relief organization.

Every debt relief option has benefits and drawbacks, depending on your total debt balance and monthly income. Before deciding on a debt relief program, it’s important to understand how each type helps you pay off debt, impacts your credit score and history, and affects your financial goals.

Read on to explore effective debt relief options, learn how debt relief companies provide assistance for debtors, and weigh the pros and cons of each solution.

What Is Debt Relief?

Debt relief is the process of strategically eliminating debt either with the assistance of a debt relief company or on your own. This process typically involves creating a monthly payment plan to organize and maintain your finances while repaying large balances.

Debt relief options include the following:

Debt Consolidation

Debt consolidation involves two distinct approaches to ending debts. The first is to open a zero-interest balance transfer credit card, move large balances to the new card, and pay them down interest-free. This option works best for consumers with moderate credit card debt that they can reasonably pay off within the initial zero-interest period (typically 12-18 months).

Consumers can also opt to pay off balances using a debt consolidation loan. This involves finding a lender and securing a loan big enough to pay off all your current debts. Next, you’ll take on new debt but owe a single monthly payment to one institution, ideally at a lower interest rate.

Debt Management

Debt management allows consumers to organize monthly bills using professional help.

Nonprofit and private credit counseling agencies offer debt management programs to aid consumers in paying off multiple debts. Once you enroll in a program, you’ll send funds to the organization each month to distribute among your creditors.

Debt Settlement

Settling debt involves negotiating with creditors to reduce the total amount you owe. Debt settlement can eliminate thousands of dollars in debt while you pay off the remaining balance. Consumers can choose to contact creditors on their own or work with a debt settlement company to leverage the expertise of trained negotiators.

Bankruptcy

This option is typically used as a last resort due to the negative and lengthy impact bankruptcy has on your credit history.

Consumers typically file for Chapter 7 or Chapter 13 bankruptcy. In Chapter 7 bankruptcy, consumers sell off assets to pay debts, while Chapter 13 restructures your finances in favor of a court-ordered payment plan based on your current debts.

Filing for bankruptcy is a complex legal process. It’s best to seek the advice of an attorney before you get started.

DIY Debt Relief

Consumers can approach debt relief on their own using methods like debt snowball and debt avalanche. Debt snowball and avalanche are nicknames for options used to pay off debts independently based on their sizes.

In debt snowball, consumers focus on paying off small debts first to gain confidence and save more income to eliminate large balances.

Using the avalanche method, consumers instead focus on paying off their largest debts, followed by smaller balances. Both methods require persistence and a commitment to budget and pay off debts under your own guidance.

When Should You Enroll in a Debt Relief Program?

Getting professional assistance may be the best option to easily pay off debts. Consider enrolling in a debt relief program if:

1. Your credit cards are maxed out. Several types of debt relief reduce or restructure payments for consumers carrying thousands of dollars in credit card balances. These programs may also help you eliminate sky-high interest payments.  
2. You feel stuck. When it seems like you’ll never get out of debt because you’re trapped in a cycle of paying interest instead of reducing your balance, debt relief can offer a way out.
3. You’re not ready to declare bankruptcy. Although some consumers think bankruptcy is the only way to clear debt burdens, debt relief provides alternatives to this legal process. Declaring bankruptcy negatively impacts your credit for up to 10 years, making it difficult to secure loans and open new lines of credit. 
4. You see no realistic way to repay debts. Debt relief helps you create a plan to pay what you owe using what you have. Even if you’ve lost income or you’re stretching your wages each month, debt relief programs often work within limited budgets.

Debt Relief Companies

While some consumers choose to navigate debt relief independently, debt relief companies can add expertise and value to the process. Debt relief organizations work with customers to assess their financial situations and offer customized plans for eliminating debts. While some companies provide multiple options, many focus on either debt consolidation, management, or settlement.

Unfortunately, some companies that promise debt relief offer little assistance and resources while charging big fees. It’s imperative to do your research and consider several options before choosing a partner for your debt relief journey.

How To Choose a Debt Relief Company

1. Read Reviews

Look for debt relief companies with published consumer reviews on sites like Google and Trustpilot. Read reviews from previous clients to get a picture of customer service and program success rates. Find companies with large collections of positive reviews and discover what customers say about their experiences.

Another way to research debt relief companies is to read ratings from the Better Business Bureau (BBB).  The BBB vets organizations for top-rated service and fair business practices. You can also check company websites for membership in organizations like the American Association for Debt Resolution (AADR) or the American Fair Credit Counsel (AFCC).

2. Determine the Fees

Depending on the type of debt relief you choose, you’ll pay fees to enroll in the program and receive professional assistance.

Debt consolidation involves fees based on the interest rate you secure when you take out a loan. For balance-transfer credit cards, you’ll likely pay a small fee to move your balance to the new card. You may also owe a pre-determined APR on any remaining balance if you don’t pay off the card in full before the end of the zero-interest period.

Reputable debt settlement companies charge fees after the organization settles with your credit card company. Look for a debt settlement program with no upfront fees and a free consultation. Most companies charge a fee of 15-25% based on the amount of debt you enroll.

3. Educate Yourself

Many debt relief companies offer resources that explain debt relief and other financial topics in detail. Before making a decision, learn more about each option through company blogs and learning videos.

Take advantage of financial education topics like budgeting and raising your credit score to become a wise consumer. This also helps you find organizations that offer value to clients beyond their debt relief programs.

4. Find the Right Fit

Committing to debt relief takes time and effort. Finding an organization that closely aligns with your financial goals can help you finish the program and confidently manage your finances to avoid debt in the future.

If you want to reduce credit card debt and pay it off as quickly as possible, consider working with a debt settlement company. To simplify the payment process for multiple debts, a debt management company may be the most effective choice.

Qualifying for Debt Relief

Debt relief organizations consider several factors before enrolling clients into a program. The first is your total debt amount. Programs typically require you to carry a minimum of $7,500 to $10,000 in debt, depending on the company and type of debt relief you pursue. Some lenders offer debt consolidation loans for as little as $1,000 for those with smaller debt balances.

Many debt relief companies review your debt-to-income ratio (DTI) to determine if you’re right for a program. Some programs require you to prove how financial hardship is preventing you from paying off your debts. However, if you don’t have enough income to make monthly payments toward your debt, you may not qualify for debt settlement or management programs.

Once you determine which type of debt relief best fits your income, budget, and financial goals, find a reputable debt relief organization to help you through the process. Review program qualifications and contact the company for an initial consultation.

Is Debt Relief Worth It?

In many cases, debt relief offers a lifeline to consumers overwhelmed with heavy debts. Eliminating large balances frees up more of your income to spend on important things like education and gives you extra funds for vacations and entertainment. Weighing the pros and cons gives you a better picture of what makes debt relief worth it and the kinds of sacrifices you may need to make.

Benefits of Debt Relief Programs

Debt relief programs can effectively clear debts that may seem impossible to repay. Leveraging the experience of a debt relief company often results in paying off debts faster and can help you save money by lowering interest payments or reducing your total debt.

Here’s a breakdown of the possible benefits of using a professional debt relief program:

• Faster debt repayment
• Lower interest fees
• Reduced debt balances
• Affordable payment plans
• Organized monthly payments
• Professional resources

Drawbacks of Debt Relief

Debt relief programs can cost money and may impact your credit score. They also only work if you commit to making monthly payments. If you get behind or fail to complete the program, you’ll end up back where you started and may have accrued extra fees.

Here’s an honest look at the possible cons of using a debt relief program:

• Lowers your credit score
• Charges fees for services 
• Requires you to close out credit accounts
• Becomes ineffective without completion
• Creates taxable income in some cases of forgiven debt

How To Spot Debt Relief Scams

While genuine debt relief help exists, many unscrupulous businesses contact consumers, tricking them into paying money and offering little effective assistance with debt. The Federal Trade Commission offers consumer alerts about various topics, including debt relief scams and spam calls. The Consumer Financial Protection Bureau also offers practical information about protecting yourself from scams.

To spot a debt relief scam, look for the following red flags:

1. Upfront Fees

Legitimate debt relief companies never ask for upfront fees. Federal rules prohibit these companies from collecting fees before they provide services. Debt relief organizations must sign an agreement with you and deal with at least one of your debts before charging a fee.

If a company contacts you by phone or email and asks for fees before providing actual debt relief services, end the call or ignore the email since it’s probably a scam.

2. Promises of Quick Fixes

When an offer seems too good to be true, it usually is. This rule also applies to debt relief companies.

Debt relief is a long and challenging process, and if someone promises to erase all your debts quickly with no consequences, they’re probably a scam artist. Companies that offer to repair your credit score or remove negative information from your credit report are likely also scams.

Legitimate debt relief companies offer advice and help you set up a debt management plan, debt consolidation loan, or debt settlement program. Once you enroll in a program, you’ll make regular monthly payments to eliminate your debts. Authentic debt relief methods usually take between 24 and 48 months to pay off debts.

3. High-Pressure Sales Tactics

Debt relief scammers pressure you to sign up for their plan quickly. They often use urgency and high-pressure sales tactics, such as telling you that enrollment is only available for a limited time before taking time to understand your financial situation. They use this tactic to force you to decide quickly, which is likely uninformed and may cause financial issues.

If you receive robocalls or scam calls pressuring you, hang up. When it comes to debt, take your time to think clearly and weigh your options before you sign up for any debt relief program.

Choose Effective Debt Relief

If you’re struggling with thousands of dollars in unsecured debts, a debt relief program can help you overcome large balances and give you the freedom to start rebuilding your wealth. Partnering with TurboDebt means you’ll benefit from top-rated service and affordable repayment plans customized to fit your income and financial goals.

With no upfront fees and flexible payment options, clients pay off debts in as little as 24 months. It only takes a few minutes to find out if you qualify. Start your free consultation with a team member today and begin your journey to live debt-free once again.