What Is Debt Relief? Every Option, Its Cost and Its Risks

On this page

• What debt relief means
• Debt relief options, from gentlest to most drastic
• 1. Ask your card company for a hardship program
• 2. Nonprofit credit counseling and a debt management plan
• 3. Debt settlement
• 4. Bankruptcy
• Does debt relief hurt your credit?
• Is credit card debt forgiveness real?
• Are debt relief programs legit?
• Bottom line
• Common questions
• Sources

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Debt relief is any way of changing what you owe or how you repay it: a lower interest rate, a lower monthly payment, a smaller balance, or a court discharge. It ranges from a hardship plan you set up with your card company to nonprofit credit counseling, debt settlement and bankruptcy. When an ad says "debt relief," it often means debt settlement, which carries more risk than the gentler options, so it helps to know the whole range before you call anyone.

This page is the overview. For every way out of card debt in more depth, with worked numbers, see how to get out of credit card debt.

What debt relief means

People use the phrase loosely, but federal law does define the services. Under the FTC's Telemarketing Sales Rule, a debt relief service is "any program or service represented, directly or by implication, to renegotiate, settle, or in any way alter the terms of payment or other terms of the debt" between you and one or more unsecured creditors or debt collectors. That includes a reduction in the balance, the interest rate or the fees you owe.

The definition is wide. The FTC's guide for businesses lists three kinds of companies it covers:

• Debt settlement: companies that say they can settle your debts for less than the full balance.
• Debt negotiation: companies that say they can lower your monthly payments by getting creditors to cut interest rates or make other concessions.
• Credit counseling: companies that negotiate and run a monthly payment plan, often called a debt management plan, for example by lowering interest rates or forgiving late fees.

In ads, "debt relief" often means the first kind. The CFPB says debt settlement companies are "also sometimes called 'debt relief' or 'debt adjusting' companies" and that they often claim they can negotiate with your creditors to reduce what you owe.

Debt relief works on unsecured debt, the kind with no house or car behind it: credit cards, medical bills and personal loans. Mortgages have their own hardship options with the lender.

Debt relief options, from gentlest to most drastic

The options below are in the order of how little each asks you to give up. The first two leave your accounts in good standing if you keep paying. The last two usually don't.

A consolidation loan or balance transfer can also lower what you pay, but it doesn't change your existing debts. It replaces them with a new one. Our pillar guide covers both.

1. Ask your card company for a hardship program

The first call is to the company you owe. The FTC says you don't need to pay a company to talk to your credit card company on your behalf. You can ask for a lower interest rate and suggest a payment plan you can afford yourself, for free.

Many card companies run hardship programs. The CFPB says these programs often let you "postpone a set number of monthly payments or pay a lower monthly payment at a reduced interest rate, until you repay the balance in full". If the company decides you can't afford full repayment within a certain time, you might be able to negotiate a settlement for less than you owe. Get written confirmation of any arrangement.

Call before you fall behind. The CFPB says a delinquency can generally stay on your credit report for up to seven years. If your balances would go down with a steady monthly amount, a payoff plan in avalanche or snowball order costs nothing in fees.

2. Nonprofit credit counseling and a debt management plan

The CFPB says credit counseling organizations "are usually nonprofit organizations that advise you on managing your money and debts". A counselor reviews your budget and may suggest a debt management plan (DMP). You make one payment a month to the counseling agency, and it pays your creditors. The FTC says your creditors may agree to lower your interest rates or waive certain fees.

What to weigh:

• A DMP repays what you owe. It doesn't shrink the balance. Its savings come from lower rates and fees.
• The FTC says a plan requires regular, timely payments and can take 48 months or more. You might have to agree not to apply for or use more credit until it's finished.
• Nonprofit doesn't mean free. The FTC says non-profit status doesn't guarantee a service is free or affordable, or that it's legitimate. Services are often free or low-cost, but ask for fees in writing.
• With an NFCC member agency, your accounts are credited with 100 percent of the amount you send in, and the NFCC says repaying in full according to plan may help you re-establish credit.

The CFPB suggests finding a counselor through the Financial Counseling Association of America or the National Foundation for Credit Counseling. Be wary of any counselor who says a DMP is your only option before reviewing your finances. Our debt management plan guide explains how a plan runs month to month.

3. Debt settlement

This is what many "debt relief programs" sell. The FTC says for-profit companies typically offer debt settlement programs to people with significant credit card debt. You save a set amount each month in a dedicated account, and the company tries to get each creditor to accept a lump sum that's less than you owe. These programs often encourage you to stop paying your creditors while you save.

The CFPB lists the risks plainly: settlement companies often charge expensive fees, some creditors may refuse to work with them, a creditor may file a collection lawsuit, and your credit scores can suffer. If you stop paying, you'll usually be charged late fees, penalty interest and other charges. The CFPB's summary: "Debt settlement may well leave you deeper in debt than you were when you started."

The FTC adds that many people can't keep up the deposits long enough and drop out. Then you've paid fees on the debts that settled, you still owe the rest, and your credit report shows the late payments. You can also try to settle a debt yourself, without a company, and get the agreement in writing before you pay.

Settlement percentages and company fees vary, so any estimate rests on assumptions. Our estimator starts with adjustable defaults you can replace with what a company actually discloses. For the full cost breakdown, read debt settlement pros and cons.

4. Bankruptcy

People who file for personal bankruptcy get a discharge, a court order saying they don't have to repay certain debts. The FTC says bankruptcy is generally considered a last option because of its long-term negative impact on your credit, and that bankruptcy information stays on your credit report for 10 years. It usually won't erase child support, alimony, fines, taxes and most student loans. The CFPB suggests consulting a bankruptcy attorney, who may be able to provide you with your options under the law.

Does debt relief hurt your credit?

It depends on which kind, because the damage comes mostly from missed payments:

• A hardship program or your own payment plan: the CFPB says a delinquency can stay on your credit report for up to seven years, so setting up a plan before you miss a payment, and keeping to it, avoids adding one. Ask the company how the arrangement will show on your credit report before you agree.
• A debt management plan: you keep paying every month through the agency. If you miss plan payments, you're back to the same risk.
• Debt settlement: the FTC says your credit report and credit score are likely to be damaged. If you miss the minimum payment for 4 to 6 months, the FTC says your creditor may charge off the debt, which can hurt your score further, and you still owe it. Our guide to what happens if you stop paying credit cards walks through that sequence.
• Bankruptcy: 10 years on your credit report, according to the FTC.

We don't give credit score point figures, because no primary source publishes them for these options. Your starting score and history decide how far it moves.

Is credit card debt forgiveness real?

Creditors do sometimes forgive part of a balance, through a settlement you or a company negotiates. What doesn't exist is a public plan that pays off personal card debt. The CFPB says to avoid any company that touts a "new government program" to bail out personal credit card debt, and the FTC says only scammers guarantee results from a "government" debt relief program that will pay off your debt.

Forgiven debt has a cost. The IRS says if your debt is canceled, forgiven, or discharged for less than the amount owed, the amount of the canceled debt is taxable in general. The creditor may send you a Form 1099-C showing the amount and date. The IRS lists exclusions, including debt canceled in a Title 11 bankruptcy case and debt canceled to the extent you were insolvent. A tax professional can tell you how these apply to you.

Are debt relief programs legit?

Some are, and a federal rule sets the floor for many of them. Under the FTC's Telemarketing Sales Rule, a covered company can't take its fee until it has settled or changed at least one of your debts. Before you sign up, the FTC says the company must tell you its fees, how long results will take, how much you must save before it makes each offer, and what can go wrong if you stop paying. If a company skips any of that, the FTC's advice is to walk away.

The rule has gaps worth knowing. It covers companies that sell by phone, including calls you make in response to their ads. The FTC says bona fide nonprofits aren't covered, because the rule applies only to for-profit companies, though it does cover companies that falsely claim nonprofit status. And providers, including attorneys, who meet you face to face before signing you up are likely exempt from most of it. Ask any company which rules it follows and get the answer in writing.

Before you pay anyone:

• Check the company with your state attorney general and local consumer protection agency, as the FTC recommends. No complaints doesn't prove a company is legitimate.
• Ask whether debt relief companies must be licensed in your state, and whether this one is.
• Read every fee and promise in writing before you sign.

Bottom line

Debt relief covers everything from a phone call to your card company to a bankruptcy filing. Start with the options that keep your accounts current: a hardship program, a payoff plan, or a nonprofit counselor. Settlement and bankruptcy are for debt you can't realistically repay, once you've seen the fees, the credit damage and the possible tax bill. The Debt Check runs your own debts through the same order and shows which options fit.

Common questions

What does debt relief mean?

It means any way of changing what you owe or how you repay it. Federal rules define a debt relief service as one offered to renegotiate, settle or change the terms of a debt with unsecured creditors, including lowering the balance, the interest rate or the fees. The CFPB notes that debt settlement companies are also sometimes called debt relief companies.

Does debt relief hurt your credit?

It depends on the kind. The FTC says debt settlement is likely to damage your credit report and credit score, and that bankruptcy stays on your credit report for 10 years. Paying on time under a plan you arrange yourself or through a nonprofit counselor avoids the late payments that settlement usually involves.

Does the government forgive credit card debt?

No. The CFPB says to avoid any company that touts a new government program to bail out personal credit card debt, and the FTC says only scammers guarantee results from a government debt relief program.

Can a debt relief company charge me before it settles a debt?

Not if the FTC's Telemarketing Sales Rule covers it. The FTC says a debt settlement company can't collect its fees before it settles your debt. Bona fide nonprofits aren't covered by the rule, and companies that meet you face to face before signing you up are likely exempt from most of it.

Is forgiven credit card debt taxable?

Generally, yes. The IRS says canceled debt is taxable unless an exception or exclusion applies, such as debt canceled in bankruptcy or to the extent you were insolvent. A tax professional can tell you how the rules apply to you.

Sources

1. 1CFPB: What is a debt relief program and how do I know if I should use one?
2. 2FTC: How To Get Out of Debt
3. 3Cornell LII: 16 CFR 310.2, Definitions (Telemarketing Sales Rule)
4. 4FTC: Debt Relief Services and the Telemarketing Sales Rule: A Guide for Business
5. 5CFPB: Need help with your credit card debt? Start with your credit card company!
6. 6CFPB: What is the difference between credit counseling and debt settlement, debt consolidation, or credit repair?
7. 7CFPB: What is credit counseling?
8. 8NFCC: What is a Debt Management Plan
9. 9IRS: Topic no. 431, Canceled debt – Is it taxable or not?
10. 10FTC: Looking for debt relief? Here's how to avoid a scam

By DebtCheckUSA Editorial Team. First published September 25, 2026. Advertiser disclosure