Budgeting Managing Your Debt Debt Relief: What Programs Are Available? Dig out of debt with these debt relief programs By LaToya Irby LaToya Irby Facebook Twitter LaToya Irby is a credit expert who has been covering credit and debt management for The Balance for more than a dozen years. She's been quoted in USA Today, The Chicago Tribune, and the Associated Press, and her work has been cited in several books. learn about our editorial policies Updated on November 18, 2021 Reviewed by Samantha Silberstein In This Article View All In This Article What Is Debt Relief? When To Look for Debt Relief Types of Debt Relief Programs The Bottom Line Photo: Geber86 / Getty Images Carrying a large amount of debt can be crippling, especially if it’s more than you can reasonably afford to pay off. It can overshadow all other financial priorities in your life. The good news is that there are many debt relief programs to help you with overwhelming debt. As a first step, gain clarity on your financial picture: Understand how much you owe and your current monthly payments for each of your accounts. Then, with a firm grasp on your debt details, you can work toward a strategy to become debt-free. Here’s a look at a few ways you can manage your debt with some help. Note Many lenders and credit card issuers are offering programs to assist with debt relief during the COVID-19 pandemic, allowing consumers to skip payments, canceling late fees, lowering interest rates, and more. If you find yourself struggling during the pandemic, don’t hesitate to seek help through one or more avenues. What Is Debt Relief? Debt relief is a strategy meant to resolve or deal with a large amount of personal debt. It’s a process of working with your creditors to develop a plan for paying back your debt in a way that will satisfy them, stop the phone calls from collectors, and avoid long-term damage to your credit. Ultimately, it’s a way to reduce your stress and make your debt more manageable. Note Every debt relief plan starts by getting a clear view of the debtor’s entire financial picture. Taking practical steps to curb debt can lessen its strain on your mental health, improve cognitive functioning, and reduce stress. Debt relief doesn’t always mean paying off or forgiving the debt all at once. It can be as simple as negotiating a few skipped payments or a lower interest rate. In many cases, it’s simply a strategy to restructure the debt so the payments are more manageable. This helps the debt holder and satisfies the creditor, which often would rather receive a lower negotiated payment than nothing at all. In extreme circumstances, debt relief may involve filing for bankruptcy. When To Look for Debt Relief It’s not always easy to decide when you need help dealing with debt. But there are some common signs to look for that may indicate you’re in over your head: Your debt-to-income (DTI) ratio is too high: The amount of your gross income that goes toward debt payments each month is an important number for lenders. Most mortgage lenders won’t give you new credit if your debt payments exceed 43% of your monthly income.You can’t get your credit utilization under control: Credit utilization measures your total credit card debt against your limit and makes up 30% of your credit score. If you consistently spend more than 30% of your credit limit, your credit score will suffer, and that will make it harder for you to get loans with favorable terms.You’re paying off credit cards with other credit cards: It’s one thing to transfer a balance occasionally, but if you can’t manage your payments without opening new cards, you may have a problem. If you feel so overwhelmed by debt that it’s causing significant financial or emotional strain in your life, it’s probably time to seek some help. Types of Debt Relief Programs If you decide to seek relief, there are several options for how to handle your debt. Debt Consolidation Loans A debt consolidation loan is a type of personal loan that you can use to combine multiple debts into a single balance. The benefit is that you end up with one monthly payment, which can make it easier to stick to a debt payoff plan and slot your debt payment into a monthly budget. Debt-reduction software can help you decide if a consolidation loan makes sense in your situation. Be aware that you can use your home as collateral for consolidating your debts through a home equity loan or line of credit. Your credit score may drop in the short term as a new loan is added to your credit report as part of this process. However, your score will improve steadily over the coming months, provided you make your payments on time and don’t add more debt. Before you sign on the dotted line, be sure to read the loan’s terms, including its interest rate, its repayment period, and any fees. Debt consolidation loans’ interest rates range from around 6% to nearly 36%. Debt Management Plans A debt management plan facilitated by a nonprofit credit counselor is another option. A credit counselor will help organize your finances and help you develop a debt payoff plan if you really need one. They may help you negotiate with your creditors to get better rates or extend your payment period. Credit counseling can provide some much-needed accountability and structure for your debt relief program. Be sure to ask about any fees before you start. If their rates are only going to add more financial burden, or if they are making money by referring you to other services, consider another organization. In addition, confirm that your counselor is from an accredited nonprofit organization and that they don’t push debt consolidation plans as the only option for debt relief. Note Working with a nonprofit credit counselor—even when that includes a debt management plan—usually won’t affect your credit score unless you’ve negotiated a settlement. You might see a minor impact from closing accounts, but your score will rebound over time. Debt Settlement Programs Debt settlement companies are another type of debt relief program that generally should be avoided.These companies collect payments from you each month and hold the funds in an account. Once you’ve accumulated a certain amount, the debt settlement firm approaches your creditors to negotiate a settlement on your account. Under debt settlement, you may pay expensive service fees and suffer damage to your credit if you follow advice to stop making payments on accounts that are in good standing. There’s no guarantee the debt settlement firm will be able to reach an agreement with your creditors. If you have accounts that are already past due or in collections, you can negotiate a settlement on your own, without paying a third party. Balance Transfer Credit Cards If a large chunk of your debt is made up of credit card debt, then a balance transfer may be your best approach for credit debt relief. A substantial amount of credit card debt usually means you’re paying quite a bit in interest, because the average credit card annual percentage rate (APR) is just above 20%. This is especially true if you’re paying only your card’s minimum payment. Transferring your credit card debt to a low or zero-APR balance transfer credit card is a good way to get a jump on paying down your balances. Be aware that most balance transfers come with a fee, usually a small percentage of the transferred amount, and that the introductory interest rate only lasts a limited time. To get the most benefit from a balance transfer, you need to pay the transferred balance before the introductory rate period ends. Additionally, you should avoid adding new debt on top of your transferred debt. Filing for Bankruptcy After you’ve been struggling with debt for some time, bankruptcy can sometimes feel like the best option. After all, it will eliminate your debt and allow you to start over with a clean slate. However, bankruptcy can have long-term effects on your finances and your credit. Not only can the filing cause your credit score to drop dramatically, but the bankruptcy will stay on your financial record for up to 10 years. This likely means it will take some time to qualify for new loans or receive favorable terms. There are two types of personal bankruptcy: Chapter 7 and Chapter 13. Filing for Chapter 7 will eliminate all your debt, but it also will liquidate your other assets, apart from some exempt property. Then the proceeds will go toward your debt. With Chapter 13 bankruptcy, your debts are repaid with a three- to five-year payment plan, which tends to be strict and needs to be approved in a bankruptcy court. Filing bankruptcy can be costly as you may need to hire an attorney to help you file. Note Filing bankruptcy should be your last resort when considering debt relief options. Always talk with an attorney to discuss all of your choices before going this route. The Bottom Line While your debt may feel overwhelming, just choosing a debt relief option can help you gain more control of your finances. No matter which option you choose, be sure you know all the stipulations and can afford to make your new committed payments. Don’t neglect other areas of your finances—creating a budget and building an emergency fund protect you from more debt problems and establish a healthy financial foundation. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. American Psychological Association. "Dealing With Financial Stress." FICO. "What Is Amounts Owed?" Consumer Financial Protection Bureau. "What Is Credit Counseling?" Consumer Financial Protection Bureau. "What Are Debt Settlement/Debt Relief Services and Should I Use Them?" myFico. "What Are the Different Types of Bankruptcy and How Is Each Considered by My Fico Score?"