Should I use a debt relief program?

Looking for relief from overwhelming debt? If so, a “debt relief” program probably sounds like a great solution. Unfortunately, these services can cause more problems than they solve.  

When you hire a debt relief company, it’s normal to assume they’ll settle your debt for less than you owe. But in reality, you can end up sending monthly payments to the company for two to four years before they even try to negotiate your debt.

In the meantime, your credit scores plummet, your debt increases, and you risk getting into legal trouble. 

So, you’ll want to think twice before using a debt relief program. Instead of going that route, consider a nonprofit alternative or even negotiating your debt yourself. 

What is debt relief?  

Debt relief companies are usually for-profit companies that negotiate or settle certain debts on your behalf. These companies are also called debt settlement or debt adjusting companies. 

When you work with a debt relief company, the process usually goes something like this: 

  • Contact the debt relief company to determine a monthly payment amount and sign up for the service. 
  • Stop paying and communicating with your creditors. 
  • Send monthly payments (plus fees) to a trust account held by the debt relief company for up to four years or until you’ve sent enough to settle your debt. 
  • The debt settlement company attempts to negotiate your debt. 
  • Your trust account pays for your settlements.
  • Depending on the amount of debt forgiven, you may have to report it as taxable income to the IRS. 

Read more: Debt Relief: How it Works and 4 Common Questions

Pros and cons of debt relief companies 

There’s a reason the Consumer Financial Protection Bureau (CFPB) calls debt relief and debt settlement risky. Hiring these companies can be expensive, cause legal trouble and even result in you getting a higher tax bill. So be sure to consider the real cost before going this route: 


  • Possible savings: You can potentially save money if some of your debt is forgiven, and skipping debt payments can free up cash for other expenses. 
  • Refunds: You have a right to ask for a refund on your monthly payments, minus fees. 


  • Costly services: You can be charged as much as 25% your total debt balance and end up paying thousands of dollars in fees to the debt relief company. 
  • Long payment plan: Many customers give up before they reach the end of their 2-4 year payment period. 
  • Scammers: Many debt settlement companies falsely claim to be nonprofits or government affiliated, and they may attempt to skirt fee regulations by getting you to sign up online or in person. According to the CFPB, some states require debt settlement companies to be licensed. Check with your state regulator or Attorney General to see if the company needs a license to operate in your state. 
  • Creditor fees: You typically have to stop paying your debt, which means you’ll rack up late fees on your debt accounts, and your APRs can increase, which adds to the amount you owe. If your balance surpasses the limit, you’ll have to pay additional fees. 
  • Closed accounts: You may have to close some or all of your credit cards, and creditors may choose to close additional accounts after you stop paying. 
  • Credit damage: Each time you miss a debt payment your credit scores will drop and the missed payment will stay on your credit reports for seven years. If you have an account closed or debt charged off, you’ll take additional hits to your scores. 
  • Legal risk: Your creditors may choose to sue you for the unpaid debt rather than waiting to negotiate a settlement. If they win, the result could be wage garnishment, a bank account freeze or a lien on your property. 
  • Collection calls: You may continue getting letters and calls from your creditors in an attempt to collect your debt. 
  • Doesn’t work for all debt types: Some creditors do not negotiate with debt settlement companies, and you can’t include federal student loans or secured debt. 
  • Tax bill: The debt your creditors forgive can be considered income, and you may have to report it to the IRS and pay income taxes on the forgiven amount. 

5 alternatives to debt relief 

Even if your debt feels insurmountable, there are a handful of ways to get it under control. Instead of choosing a high-risk option like debt relief, try one or more of these solutions: 

  • Negotiate a new payment plan or a settlement by contacting your creditor directly. 
  • Talk to a nonprofit credit counselor to see if you qualify for a Debt Management Plan or nonprofit debt settlement. 
  • Talk to a lawyer or credit counselor to determine if bankruptcy is an option. 
  • Take on a debt consolidation loan or a 0% APR balance transfer credit card to consolidate debt. 

Nonprofit credit counseling vs. debt relief  

Debt relief is a service geared toward reducing your debt. A certified, nonprofit credit counselor can help you find ways to manage debt, but they can also do a lot more: 

  • Assist you with reviewing or creating a budget
  • Review your credit reports and offer tips for improving your scores. 
  • Provide resources and programs for debt management, including DMPs and bankruptcy counseling. 
  • Help you prepare for financial milestones like homebuying and retirement. 
  • Facilitate public financial education workshops. 

While some nonprofit counseling services may involve a fee, most nonprofit credit counseling services are free of charge. If you’d like to set up a meeting with a legitimate credit counselor, visit or  

Written by Sarah Brady | Edited by Rose Wheeler

Sarah Brady is a financial writer and speaker who’s written for Forbes Advisor, Investopedia, Experian and more. She is also a former Housing Counselor (HUD) and Certified Credit Counselor (NFCC).

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