High interest rates and inflation may be wearing a hole in your pockets, and worse - putting you in debt. If you’re considering your debt settlement options, you should understand how each one works.
Why Debt Relief?
Debt relief is a program or strategy that can help you reduce the debt you owe, making repayment more manageable. It also helps ensure you don’t default on your loans, rack up penalties, or file for bankruptcy.
Debt Relief Strategies
Credit Counseling
Credit counselors with certified credit counseling agencies are required to promote fiscal responsibility through free counseling and education. When you meet with a counselor, they’ll review your finances with you, help you create a workable budget, and provide more access to financial literacy workshops and literature. They can help you get back on track or help you figure out if a debt management plan (DMP) is the right course for you.
Debt Management
Enrolling in a debt management plan allows your counselor to contact your lenders and work with them to reduce your interest rate and consolidate your credit cards into one monthly payment. DMPs are designed to be paid off in three to five years, ensuring you can get back on your feet more efficiently.
Debt Settlement
Debt settlement organizations are for-profit, third-party companies that should typically be a last resort. While settling with your lenders, they usually advise people to stop paying on their credit cards, resulting in penalties and late fees that can impact your credit score. Your lenders are not obligated to settle, so you could end up owing more than you started with. Although DMPs require a small fee of $40–$75 to cover the program's cost, debt settlement companies charge 15%–20% of your settled debt.
Bottom Line
A 2025 Bankrate survey found that 46% of credit cardholders carry a balance, and nearly a quarter of them believe they’ll never be free of it. But that doesn’t have to be your reality. With the right debt settlement support, you can take control of your finances and work toward a debt-free future.