Is Debt Relief a Good Idea?

Whether debt relief is a good idea for you depends on your individual situation and whether any of the solutions fit your budget and goals. But if you are struggling to pay down your debt, learning about debt relief and debt management options is a strong first step toward getting back on track.

What is debt relief?

Debt relief is a broad term that covers several strategies people use to make debt more manageable. Depending on the approach you choose, the goal may be to:

• Create a repayment plan
• Lower your interest rate (the cost of borrowing money)
• Lower your fees
• Negotiate a lower payoff amount

Different forms of debt relief options can have different effects on your credit score and financial situation. It’s important to understand all your options and what they might mean for you before choosing.

Debt relief options and programs

Debt relief options vary in how they work and how they may impact your credit score.

Credit counseling

Credit counseling is a service where you meet with a counselor, ideally one working for a nonprofit agency, who will review your financial situation, walk you through potential options and help you create a personalized plan to manage your debt.

Credit counseling focuses on creating a plan to deal with your debt, but it doesn’t eliminate your debt. You’ll need to follow through with the plan to pay off the balances you owe. According to the Consumer Financial Protection Bureau, a legitimate credit counselor typically won’t try to reduce how much you owe and will never tell you to stop repaying your debts.¹

A credit counselor might help you with:

• Budgeting strategies: During credit counseling, you may learn how to budget in a way that frees up more of your money to repay your debt.
• DIY debt payoff strategies: Your credit counselor can teach you about do-it-yourself (DIY) strategies, such as the snowball or avalanche methods, to pay down your debt.
• Debt management plan (DMP): Your credit counselor may suggest a structured repayment plan, known as a debt management plan (DMP).

With a DMP, the credit counselor will typically work with your creditors to reduce your monthly payment, extend the amount of time you have to repay or lower your interest rate. They may also work with creditors to pause collection efforts and waive late fees while the plan is active. Once the plan is set up, you make one monthly payment to the credit counseling agency instead of paying your creditors individually. A DMP is a plan that could help you pay off unsecured debt within 3 to 5 years.²

Credit counseling agencies may charge a fee to set up a DMP, as well as a monthly fee of $25-50 while you are enrolled.³ Generally, DMPs do not affect your taxes. It’s important to note that credit counselors typically instruct you to close your credit card accounts, which could negatively impact your credit score at first. However, your score should increase over time as you make on-time payments on the plan.⁴

Most credit counseling agencies are clear about their fees upfront and won’t send you a bill before providing services.⁵ To make sure you’re working with a reputable counselor, look for nonprofit agencies certified by the National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America (FCAA). You may also choose to connect with one of OneMain’s Certified Nonprofit Credit Counselors to help you create a personalized financial action plan.

Working with creditors

If you’re having trouble making payments, consider contacting your lender or credit card provider right away to see what options are available for you. Lenders may be willing to help make your payments more manageable by lowering your interest rate or pausing fees.

Some lenders have hardship programs designed to help keep your account in good standing during a time of need, such as after a job loss or medical emergency. With a hardship program, a lender might change the terms of your debt to make it more manageable, potentially pausing or reducing your payments, waiving fees or temporarily lowering your interest rate. Be prepared to provide proof of your hardship and check your budget in advance to know what kind of terms would be affordable for you.⁶

Debt settlement

Debt settlement means negotiating with your creditors to potentially accept less than the full amount you owe. You may try to negotiate your debt yourself or hire a for-profit debt settlement company, also known as a debt settlement agency (DSA), to negotiate on your behalf. But creditors aren’t required to negotiate. Whether you work with a DSA or not, there’s no guarantee that your debt will be settled.

Before hiring a DSA, consider contacting your lenders to discuss your situation and see if they can make any adjustments to your loan. Even if they’re not able to lower or pause your monthly payments, it generally doesn’t hurt to ask.⁷

If you decide to get paid help with your debt, it’s important to understand how working with a DSA is different from working with a credit counselor. Unlike a credit counselor, the DSA may advise you to stop making payments to your creditors and make payments into a savings account held by the DSA, called a trust account, instead.⁸ If the DSA reaches an agreement with your creditors, it uses the funds in the trust account to pay them. However, just because negotiations are underway doesn’t mean those payments aren’t due. Missing or stopping payments could lead to delinquency, debt collection activity or legal action — even if you’re in the process of settling the debt. And the longer the debt goes unpaid, the more it will hurt your credit score, too.

Before you work with a DSA, make sure that you’re aware of the financial risks. Hiring a DSA could be expensive, even if they’re not successful. In addition to the consequences of missing payments, you may owe income taxes on the portion of your debt that was forgiven. And even settled debts on your credit report could likely make it more difficult to get approved for mortgages, credit cards, auto loans and other forms of credit in the future. If you do manage to get approved for new credit, lenders may charge you a higher interest rate.

Visit consumerfinance.gov to find out more information about debt settlement companies.

Bankruptcy

Bankruptcy is a legal process that may help you discharge, meaning legally eliminate or reorganize certain debts. Depending on the type of bankruptcy you file, the process may cancel some debts entirely or create a court-approved repayment plan under legal protection.

Types of debt that may be discharged during bankruptcy vary depending on the chapter of bankruptcy you file for. Not all debts may be discharged. Some may need to be repaid under a court-approved repayment plan.

Bankruptcy can have serious and lasting negative effects on your credit score. While it’s possible to rebuild your credit after bankruptcy, it’s not a quick process, and it’s important to seek guidance from both a bankruptcy attorney and a certified credit counselor before considering this approach to debt relief.

Debt relief alternatives

There may be other ways to gain control over your debt beyond credit counseling, debt settlement and bankruptcy. Here are some options worth exploring:

Debt consolidation loan

A debt consolidation loan is a personal loan used to pay off multiple debts at once. If you’re approved for a debt consolidation loan, you’ll receive a lump sum and use it to repay each of your creditors in full. (In some cases, your lender may repay your creditors for you.) Then, you’ll repay the new loan over a set term with predictable monthly payments, called installments. A debt consolidation loan usually has a fixed interest rate, so as long as you make payments on time, every time, you’ll know exactly how much you’ll pay each month and when you’ll pay your debt off.

A debt consolidation loan can be secured or unsecured. A secured loan is backed by collateral — something of value that you own, like a vehicle. With a secured loan, you may get more favorable terms, like a lower interest rate, lower monthly payments or a higher borrowing amount. Just be aware that if you can’t repay a secured loan, the lender can claim your collateral.

An unsecured loan doesn’t require collateral. However, without collateral to secure the loan, the lender relies more heavily on your credit history and financial situation to decide whether to approve your application. At OneMain, we work with a wide range of customer credit scores and take your total financial picture into account to help you find a debt consolidation loan that’s right for you.

Whether you choose a secured or unsecured debt consolidation loan, consolidation tends to work best if you avoid taking on new debt while working to pay off your existing debt.

Credit card balance transfer offer

A balance transfer offer is a low introductory or promotional annual percentage rate (APR) offered by a credit card provider for moving existing credit card balances to one of their credit cards. APR is the yearly cost of borrowing, including interest and fees. For some balance transfer offers, the APR could be as low as 0% during the offer period.

Using a credit card with a balance transfer offer works best when you have a clear plan to pay off the balance during the promotional offer period. If you don’t pay off the full transferred balance before the offer period ends, the remaining balance will begin accruing interest at the card’s regular, non-promotional APR, which is often much higher. And if you’re using a credit card with deferred interest, you could be charged interest on the entire transferred amount.⁹

Depending on the card issuer, you may also need to pay a balance transfer fee, which may be up to 3-5% of the balance you transfer.¹⁰ Finally, it’s important to note that you may not be offered a credit limit that covers all of your balances.

If you choose this kind of credit card debt relief, it’s important to know that a balance transfer offer could temporarily change your interest rate, but it won’t reduce how much you owe. In fact, if you don’t repay the balance before the promotional period ends or if you use the card to make new purchases, you’ll wind up owing more than when you started.

Do-it-yourself debt management methods

DIY debt management methods let you pay down debt on your own terms, without working with a third party. Two of the most common methods are the debt snowball and debt avalanche methods.

Debt snowball method

To use the debt snowball method, you start by listing your debts from smallest to largest. Then, you focus on putting as much extra money as you can toward the debt with the smallest balance first. Each time you pay off another debt, the amount of money you have available to make payments on the next debt “snowballs,” or grows larger.

The debt snowball method offers quick wins that could help you stay motivated, but it may cost more in interest since it doesn’t prioritize high-interest debts.

Debt avalanche method

When you use the debt avalanche method, you focus on each debt’s APR instead of the size of the debt. You begin by listing your debts from the highest APR to the smallest, then direct any extra money you can spare toward the debt with the highest APR first. Once you pay off that debt, you move on to the debt with the next highest APR and continue the process until you’ve paid off all your debt.

Depending on your debts and their APRs, the debt avalanche method could help you save money on interest, but it may take longer to notice momentum if your highest-interest debt also has a larger balance.

Whatever method you use, it’s essential to keep making at least the monthly minimum payment on all of your debts to avoid late fees and protect your credit score.

How debt relief and debt management strategies could affect your credit score

The impact of debt relief on your credit score depends on the approach you choose and the scoring factors it affects. Some methods could help your credit score if you manage them wisely. Other options could seriously hurt your credit score. Here are some common ways various forms of debt relief could affect your credit score:

Payment history

Payment history strongly influences your credit score. If, for example, a DMP or debt consolidation helps you make more consistent on-time payments, it may improve your score over time. Debt relief solutions that cause you to delay or miss payments, such as debt settlement, may decrease your score and remain on your credit report for 7 years.¹¹

Credit utilization

Credit utilization is the percentage of total credit you use in comparison to the total credit you have available. A general rule of thumb is that the lower your credit utilization is, the better it is for your credit score. For example, paying off credit card debt with a debt consolidation loan typically lowers your credit utilization, so long as you keep your credit cards open.

New credit

Applying for new credit, such as a debt consolidation loan or credit card with a balance transfer offer, usually involves a hard credit inquiry, which may temporarily lower your credit score by a few points.¹² Multiple hard inquiries within a short time frame can lower your credit score even more, so it’s a good idea to be careful about how many credit cards or loans you apply for at once.

If you want to compare offers, you might consider prequalifying first. Prequalifying only triggers a soft inquiry, which doesn’t affect your credit score, and it’s a simple way to narrow down your options. And if prequalification isn’t an option, it’s good to know that some credit scoring models, like VantageScore®, consider hard inquiries that happen within 14 days as a single inquiry.¹³

Negative events

Debt settlement and bankruptcy could lead to these negative events on your credit report:

• Settlement: Debt settlement can drop your credit score by 100 points or more, and a settled debt can stay on your credit report for 7 years.^14,15
• Default: A DSA may instruct you to stop making monthly payments while they negotiate on your behalf. If you default on a debt during this period (fail to repay it according to the terms outlined in your agreement with the lender), the default may stay on your credit report for seven years.¹⁶
• Bankruptcy: A bankruptcy record can decrease your credit score by up to 200 points and may stay on your credit report for up to 10 years.¹⁷ However, the exact impact may vary depending on your previous credit score and the type of bankruptcy you choose.

What to be aware of before choosing debt relief or a debt management strategy

Not all debt relief approaches offer the same benefits or carry the same risks. As you explore your options, keep these factors in mind:

• Fees and costs: Certain debt relief solutions involve fees, which can add to the total cost of resolving your debt. For example, you may need to pay a balance transfer fee if you use a credit card with a balance transfer offer or an origination fee if you take out a debt consolidation loan.
• Not all debts qualify: Make sure you understand which of your debts are eligible for the form of debt relief you’re considering. For example, student loans and secured debts, such as a mortgage, generally don’t qualify for a DMP.¹⁸
• Some methods may cause you to fall further behind: Pausing payments, as with debt settlement, may trigger late fees, debt collection activity or legal action.
• Time and commitment required: Most debt relief approaches take time and consistent follow-through with on-time payments for months or even years. There's no quick fix to debt.
• Risk of scammers: Scammers may appear anywhere, but they’re more common in the debt settlement industry. No matter what debt relief option you choose be wary of any company or person that asks for upfront fees, makes guarantees or tells you to stop communicating with your creditors.

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Debt relief isn’t one size fits all

Debt relief doesn’t just mean one thing. Some approaches, such as debt consolidation or a debt management plan, may help simplify repayment or reduce the amount of interest you pay over time. Others, such as debt settlement or bankruptcy, may potentially reduce the total debt you have to repay, but come with drawbacks, especially for your credit score.

The right fit for you depends on your short- and long-term money goals, your cash flow and how comfortable you are with each option.

Sources

1, 8 https://www.consumerfinance.gov/ask-cfpb/what-is-the-difference-between-credit-counseling-and-debt-settlement-debt-consolidation-or-credit-repair-en-1449/
2, 3, 4 https://www.nfcc.org/blog/which-debt-repayment-method-is-right-for-you/
5 https://consumer.ftc.gov/consumer-alerts/2026/03/looking-debt-relief-heres-how-avoid-scam
6 https://www.nerdwallet.com/credit-cards/learn/what-is-a-credit-card-hardship-program
7 https://www.equifax.com/personal/education/debt-management/articles/-/learn/debt-negotiation-with-lenders/
9 https://www.bankrate.com/credit-cards/balance-transfer/what-is-a-balance-transfer-fee/
10 https://www.experian.com/blogs/ask-experian/should-i-get-a-balance-transfer-card-or-debt-consolidation-loan/
11 https://www.experian.com/blogs/ask-experian/how-does-debt-relief-work/
12https://www.experian.com/blogs/ask-experian/how-long-do-hard-inquiries-stay-on-your-credit-report/
13 https://vantagescore.com/consumers/blog/the-complete-guide-to-your-vantagescore
14 https://www.nfcc.org/blog/debt-relief-programs-the-pros-and-cons-of-each-type/
15 https://www.experian.com/blogs/ask-experian/how-long-do-settled-accounts-remain-on-a-credit-report/
16 https://www.experian.com/blogs/ask-experian/will-a-default-be-removed-if-paid/
17 https://www.experian.com/blogs/ask-experian/how-does-filing-bankruptcy-affect-your-credit/
18 https://fcaa.org/2024/02/06/debt-relief-options-which-is-right-for-you/