If you’re ready to get serious about reducing your debt, knowing what debt relief options are available to you is an important first step. The strategy you choose may depend on the amount of debt you have, your finances, and your credit standing.
What Is Debt Relief?
If reducing your debt sounds too good to be true, then you’re in luck. Various strategies and programs can help you pay down your debt and lower your risk for defaulting on loans or filing for bankruptcy.
Finding the Right Path to Debt Relief
Credit Counseling
Meeting with a certified credit counselor is a smart first step toward getting your finances back on track. During your session, the counselor will help you review your budget, assess your overall financial situation, and set goals for the future. They can also guide you through your repayment options and determine whether a Debt Management Plan (DMP) might be right for you. Nonprofit credit counseling agencies are required to offer free counseling and financial education, making this a valuable resource for anyone seeking debt relief.
What Is a DMP?
A debt management plan (DMP) is a program in which your counselor works with your creditors to consolidate your credit cards into one affordable monthly payment while reducing your interest rate, allowing you to pay off your balances more easily. These programs are designed so you can pay your debt off in three to five years, giving you the support and plan you need to get back on a solid footing financially.
Debt Settlement or Debt Management?
While no one can make this choice for you but you, debt settlement is risky. A credit counseling agency may charge $40–$75 to cover the cost of managing your DMP, but debt settlement companies charge high fees—15%–20% of your settled debt. While they’re trying to work with your lenders to settle, these companies will typically tell you to stop paying on your credit cards altogether. The theory is that your lenders will settle because some money is better than nothing. However, there’s no guarantee, meaning you’ve now accrued late fees and penalties that negatively impact your credit score.
Bottom Line
A recent Bankrate survey reported that of the 46% of credit cardholders with balances, 23% believe they’ll never pay it off. No one wants to live with the weight of debt on their shoulders, but knowing your debt relief options can help you find the right one for you.