FAQs
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.
When should you consider applying for a debt relief program? ›
You may consider debt relief if: You're behind on credit card bills or other loan payments. You're not behind on bills yet, but you're struggling to afford your payments. You've tried to manage your debt on your own, but you can't seem to make any progress.
Is there really a debt relief program from the government? ›
Unfortunately, there is no such thing as a government-sponsored program for credit card debt relief. In fact, if you receive a solicitation that touts a government program to get you out of debt, you may want to think twice about working with that company.
How do I know if a debt relief company is legit? ›
They Ask for Fees Upfront
This is the most obvious sign of a debt relief scam. If the person/company offers to help get rid of your debt but first you have to pay them a fee, they're probably lying to you. Cut off contact and file a complaint with us.
Is using a debt relief company a good idea? ›
The goal of debt settlement is to lower your total debt and avoid bankruptcy. A debt settlement company can help you do that, or you can do it yourself. A company can save you time and may be worth the added expense, but they usually can't do anything you can't do yourself.
What are the dangers of debt forgiveness? ›
Using 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.
Are there any legit debt relief programs? ›
Freedom Debt Relief helps people with many types of unsecured debts, including payday loans and private student loans. The services offered by Freedom Debt Relief can be expensive because, if negotiations are successful, it charges a percentage fee of your initial debts, rather than of the amount of settled debt.
How much does it cost to use a debt relief program? ›
Best Debt Relief Companies
Company | Fee |
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National Debt Relief | 15%–25% of settled debt |
Freedom Debt Relief | 15%–25% of initial debt |
Accredited Debt Relief | 25% of settled debt |
New Era Debt Relief | 14%–23% of initial debt |
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Can I apply for a credit card while in a debt relief program? ›
You can't make any new charges on your existing accounts or get new credit cards until you complete the program. But you can get out of debt faster with total payments that are up to 50 percent less. It's also important to note that your credit counselors will help you set up a new budget when you enroll.
Can I get a government loan to pay off debt? ›
While there are no government debt relief grants, there is free money to pay other bills, which should lead to paying off debt because it frees up funds. The biggest grant the government offers may be housing vouchers for those who qualify.
Debt relief can be a lifeline to help you get out from under unaffordable debt—but it can also damage your credit. So, if you're considering a form of debt relief, you'll want to bear in mind its effect on your credit report, where the information can stay for up to 10 years.
How to clear credit card debt without paying? ›
Outside of bankruptcy or debt settlement, there are really no other ways to completely wipe away credit card debt without paying. Making minimum payments and slowly chipping away at the balance is the norm for most people in debt, and that may be the best option in many situations.
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.
Is debt hardship relief legit? ›
The email says you have been approved for financial support and to call a phone number to finish enrolling in the program. However, it is all fake. The scammer merely wants to steal your personal and financial information.
Does debt relief hurt your credit? ›
Debt management plans themselves do not affect your credit scores, but closing accounts can hurt your scores. Once you've completed the plan, you can apply for credit again.
Does debt forgiveness ruin your credit? ›
Downsides of debt forgiveness
Debt forgiveness may negatively affect credit scores, making it challenging to obtain future loans or credit. Forgiven debt of more than $600 may be considered taxable income, potentially resulting in a hefty tax bill.
Why shouldn't you do debt settlement? ›
Stopping payment on a debt means you could face late fees and accruing interest. Additionally, just because a creditor agrees to lower the amount you owe doesn't mean you're free and clear on that particular debt. Forgiven debt could be considered taxable income on your federal taxes.
Do it yourself debt relief pros and cons? ›
Understanding the Process of Debt Settlement
Pros of DIY Debt Settlement | Cons of DIY Debt Settlement |
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Total control of the process | Total responsibility for the process |
Potential faster repayment of debt | Requires more time, patience, effort, and negotiating skill than you may have at hand |
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Does using national debt relief hurt your credit? ›
The bottom line. Your credit score is important — and debt relief services may cause it to fall. But if your score has already been damaged by a series of poor financial habits it may be worth a temporary hit with debt relief now to improve your creditworthiness long-term.