Compare debt relief programs

Debt relief programs like debt settlement have a low completion rate — but for many, the benefit of paying less outweighs the risks. However, be prepared to spend three to five years working with a debt relief company to see results.

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What is debt relief and is it legit?

Debt relief encompasses a wide scope of services, from negotiations with your creditors to debt management tools. Some debt relief companies help you manage your current debt and budget repayments in an affordable way. Others, like debt settlement companies, negotiate with your creditors to reduce the amount you owe.

In most cases, debt relief is legit. But you should avoid signing up with a company that doesn’t meet federal requirements or doesn’t provide much information on its website.

How will it affect my credit?

Credit counseling and debt management will have little to no impact on your credit score — but debt settlement or negotiation will. If your company tells you to stop paying your creditors, you may face a lower credit score, more collection calls and a lawsuit once your debt is sold to collections.
If a lawsuit is successful, a debt collection agency may be able to garnish your wages for the amount owed, which could throw a wrench in the debt relief process. Carefully consider the potential downsides to debt relief before signing up for a program.

5 types of debt relief programs

Debt relief doesn’t necessarily mean debt settlement. There are other ways to tackle your debt — although you’ll likely have to pay a fee for any option you find.

• Credit counseling. Credit counselors are nonprofit organizations that help people in their community learn more about managing their finances. You can browse a list of credit counselors managed by the Department of Justice.
• Debt management. This involves some negotiation with your creditors alongside a plan to help you pay off your debts.
• Debt settlement. Similar to debt management, a debt settlement company negotiates on your behalf. It pays your creditor, and then you pay back the debt settlement company in low monthly payments over three to five years.
• Debt consolidation. Debt consolidation is a good choice for smaller amounts of debt — provided you have good to excellent credit. You can consolidate your payments to make debt easier to manage, and you may even be able to score a lower APR and pay less interest.
• Bankruptcy. Bankruptcy should be your last choice. It stays on your credit for seven to 10 years and can significantly impact your ability to borrow. However, it eliminates a large majority of your debt with no payment plan.

Are debt relief and debt consolidation the same thing?

Debt consolidation can be a form of debt relief, but in general, debt relief refers to debt settlement or debt management. Debt consolidation is typically only available to people with good to excellent credit because it involves borrowing a new loan to pay off all your debts at once. This consolidates your payments, and could potentially lower them — if you’re able to score a lower average interest rate.

Debt settlement involves working with a company that will negotiate with your creditors on your behalf. The goal is to pay off your debt for less than you owe. However, most debt settlement companies charge a high fee and require you to stop paying your creditors, which could put you at risk of a lawsuit.

What to look for in a debt relief company

Consider the following factors when comparing debt relief companies:

• Accreditation. Most legit debt relief companies are accredited with either the American Fair Credit Council (AFCC) or the International Association of Professional Debt Arbitrators (IAPDA).
• Not banned from debt relief. Because there are scams in the debt relief world, you should check the FTC list of companies and people banned from debt relief before you sign up for any program.
• Transparency. If you can’t find vital information like how much debt relief costs, how fees are calculated and how long the company has been in business, consider working with another provider.
• Costs. Debt relief companies often charge a fee for either a percentage of the total amount of debt you have or the amount they’re able to reduce your debt by. Most credit counseling services are free, though some may charge a small fee depending on your state.
• Direct or indirect negotiation. If you pick a debt settlement company, ensure it negotiates with your creditors directly. Indirect negotiation is uncommon and may put your information at risk when it’s transferred between companies.
• Eligibility. Many companies have restrictions on your total debt balance, types of debt and where you live. And some debt relief companies are geared toward different credit scores and income ranges.
• Customer reviews. Online review sites like the BBB and Trustpilot are a good place to look out for red flags and learn what you can expect from a debt relief company.

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Beware of debt relief scams

While most debt relief companies are legit, there are scams out there. It’s easier to find a legit credit counseling agency than any other type of debt relief company — they’re mostly nonprofit and the Department of Justice has already done most of the work for you by compiling a government-approved list of credit counselors.

4 signs of a debt relief scam

It should set off alarm bells if you a see a company committing any of these offenses:

1. It charges upfront fees for its services.
2. It guarantees a specific amount of debt savings.
3. It promises it can settle lawsuits and stop calls from collection agencies.
4. It advertises itself as a new government program that can erase your debt.

It also pays to be aware of your state laws. Ensure that any debt relief company or attorney you’re working with holds the appropriate licenses and follows state regulations.

Debt relief alternatives

You can handle your debt on your own with determination and a manageable budget.

• Repayment strategies. While it won’t result in a reduction to the amount you owe, you can adopt a repayment strategy like the debt avalanche or snowball to build your budget and pay off your debts in manageable chunks.
• DIY negotiations. Debt management and debt settlement companies negotiate on your behalf, but you can reach out to your creditors on your own. Explain your situation and see if you can lower the amount you owe or modify your repayment schedule.

Bottom line

If you’ve decided on settlement, consider these top debt relief companies when you’re ready to get started.

Frequently asked questions

• Does the government offer debt relief programs?

  No, but you’ll find government-approved credit counseling agencies. Avoid any debt relief companies advertising a “new” government debt relief program — it’s a common scam tactic designed to steal your money.

• Can I get a debt relief grant?

  No, foundations and government programs don’t offer grants to individuals.

• Can I use my credit cards after I've sought debt relief?

  It depends on the type of debt relief you’re participating in. Talking with a credit counseling agency shouldn’t affect your ability to use existing credit cards. But a debt settlement or debt management program might require you to cancel your credit cards or could result in your credit card companies canceling your cards.

  You might be able to apply for additional cards after you’ve finished your debt relief program, but you won’t be able to use your old ones. Look into secured credit cards designed to help you rebuild your credit score.

• Are there debt relief options for overdue taxes?

  Yes. You can work with the IRS to come up with a payment plan, reduce the amount of debt you owe or even pause collections on your debt. This service is done directly through the IRS, rather than an outside company.

  Alternatively, you can take out a personal loan to pay off your tax debt if you just need to break it up into more manageable installments.

• How can I benefit from the Mortgage Forgiveness Debt Relief Act?

  If your mortgage is canceled, you might not have to pay income taxes on up to $2 million of that canceled debt, according to this 2007 law. However, not everyone can qualify. Contact a tax specialist to make sure you meet all criteria.