An alternative to a debt settlement company is a non-profit consumer credit counseling service. These non-profits can attempt to work with you and your creditors to develop a debt management plan that you can afford, and that can help get you out of debt. They usually will also help you develop a budget and provide other financial counseling.
Also, you may want to consider consulting a bankruptcy attorney, who may be able to provide you with your options under the law. Some bankruptcy attorneys will speak to you initially free of charge.
Warning: There could be tax consequences for debt forgiveness. If a portion of your debt is forgiven by the creditor, it could be counted as taxable income on your federal income taxes. You may want to consult a tax advisor or tax attorney to learn how forgiven debt affects your federal income tax.
For servicemembers with loans taken out before entering active duty military service, the Servicemembers Civil Relief Act (SCRA) provides a variety of protections, including an interest rate reduction down to 6 percent and foreclosure protections. Download our fact sheet to learn more.
If you are on active duty when you refinance or consolidate your loans, the new loan will not be covered under the protections of the SCRA since it is no longer considered a pre-service loan. For example, if you took out a student loan before you entered active duty, but then consolidate that student loan after entering active duty, you would not then be able to request an interest rate reduction down to 6 percent on that new consolidation loan. Or, if you took out a mortgage before you entered active duty, and refinance during active duty, you would lose the foreclosure protections provided under the SCRA.
If you still have questions about your rights under the SCRA, contact your closest legal assistance (JAG) office for more information. You also may be able to get assistance from your state attorney general .
FAQs
What is a debt relief program and how do I know if I should use one? Debt relief or settlement companies are companies that say they can renegotiate, settle, or in some way change the terms of a person's debt to a creditor or debt collector. Dealing with these companies can be risky.
What is the catch with debt relief program? ›
Cons of debt settlement
Creditors are not legally required to settle for less than you owe. Stopping payments on your bills (as most debt relief companies suggest) will damage your credit score. Debt settlement companies can charge fees. If over $600 is settled, the IRS will view this debt as a taxable income.
What is a debt relief program? ›
It typically involves hiring a debt relief company to employ one or more strategies that help you get debt under control, such as by reducing the amount you owe, lowering your interest rate, or securing better terms. Learn how debt relief programs work and whether they may be right for you.
Is it worth doing a debt relief program? ›
Debt relief will also often give you a fixed payment plan and a set payoff date, which can also make it worth considering — as streamlining your payments can make it easier to manage while helping you save money on interest. "One of the biggest advantages of going through a debt relief program is the savings.
What is the best debt relief program? ›
The 8 best debt relief companies of April 2024
| Debt Relief Companies | Best for |
|---|
| Featured partner National Debt Relief | Best for credit card debt |
| Money Management International | Best overall |
| Accredited Debt Relief | Best for customized options |
| Americor Debt Relief | Best for all unsecured debt types |
4 more rowsUsing debt settlement options to reduce debt comes with several risks, including late payments on your credit report, potential charge-offs, settlement company fees, tax implications on forgiven balances, possible scams and the overall risk of settlement offers not working.
Will debt relief hurt my credit? ›
Debt relief services may have a negative impact on your credit score, but that impact may not be as big as you think — and in some cases, it can help your credit. How these services impact your credit depends on the debt relief option you choose.
How does Biden debt relief work? ›
If you received a Pell Grant in college and meet the income threshold, you will be eligible for up to $20,000 in debt relief. If you did not receive a Pell Grant in college and meet the income threshold, you will be eligible for up to $10,000 in debt relief.
How long does debt relief hurt your credit? ›
Debt settlement doesn't specifically appear on your credit reports, but certain activities related to debt settlement can stay on your reports for seven years. They include missed debt payments and paying less than the full balance you owe.
How long does it take to recover from a debt relief program? ›
Debt settlement will remain on your credit report for seven years. This means that for those seven years, your settled accounts will affect your creditworthiness. Lenders usually look at your recent payment history.
Yes, you can buy a home after debt settlement. You'll just have to meet the lender's requirements to qualify for a mortgage. Unfortunately, that could be harder after you settle debt.
Can I still use my credit card after debt settlement? ›
While you can still use your open credit card accounts after debt consolidation, consumers should do so with caution. If you do use your credit card after debt consolidation, be sure to pay off your balance regularly.
Do you have to pay taxes on debt relief programs? ›
Debt Settlement Tax Consequences
The IRS considers any debt cancelation of $600 or more as additional income — and taxable — even if you didn't actually receive any money.
How to pay off $10,000 credit card debt? ›
7 ways to pay off $10,000 in credit card debt
- Opt for debt relief. One powerful approach to managing and reducing your credit card debt is with the help of debt relief companies. ...
- Use the snowball or avalanche method. ...
- Find ways to increase your income. ...
- Cut unnecessary expenses. ...
- Seek credit counseling. ...
- Use financial windfalls.
Debt settlement costs vary from one company to another, but it's common to pay 15% to 25% of the debt the company negotiates on your behalf. The right debt relief company might be able to negotiate with your creditors and convince them to accept less than you owe—typically in a lump sum—to satisfy your debt.
Is credit card forgiveness real? ›
Credit card forgiveness from credit card companies is unlikely. You may be able to negotiate with credit card companies for other debt relief, like creating a debt management plan. A debt consolidation loan can help you pay down credit card debt faster.
What are the problems with debt relief? ›
Debt settlement can cause your credit score to fall by more than 100 points, and it stays on your credit report for seven years. If your creditors close accounts as part of the settlement process, this can cause your credit utilization to increase, which also negatively affects your credit score.
