Debt Relief Options: 7 Ways to Overcome Debt
- Debt relief can take many forms, from requesting payment reductions to filing for bankruptcy.
- Qualification requirements vary depending on the option you want to pursue.
- You can accomplish many types of debt relief yourself, but you may want to call in qualified professionals, such as a credit counselor or bankruptcy attorney, to decipher your options based on your financial situation.
Debt has a way of clouding the mind. It can make you think there’s no path back to financial security — and it’s even more difficult to find one if you aren’t looking. But there are debt relief solutions, even if you have a seemingly impossible amount of debt.
Here’s what you should know.
1. Create and review your budget
If you don’t have a budget or haven’t kept yours up to date, developing one or reviewing yours could help you identify expenses you can reduce, cut or negotiate.
For example, if your energy costs are high for your income, you can ask your provider about discount programs. Or, you could research ways to reduce student loan payments, such as through income-driven repayment plans, or temporarily pause payments through forbearance.
- Don’t have a budget to help with debt management or haven’t reviewed theirs recently.
- Aren’t sure where their money is going or are unsure of recurring costs.
- Want to make sure they aren’t accidentally adding to their debt.
How to get started
If you don’t yet have a budget, start small: Check your bank account and make a list of your income and recurring expenses. For example, these expenses may include your rent or mortgage payments, utility bills, debt payments and groceries. This will give you an idea of your bare-minimum monthly costs. From there, add a few less-essential costs, like entertainment and dining out.
A budgeting app can help you automate this process. After gathering your expense details, you can find areas to cut back — like frequent takeout meals, avoidable bank fees or unused subscriptions. Even saving $10 can make a difference when you’re struggling with bills.
Over time, keep track of each month’s bills and expenses. That will help you identify any jumps in spending you can curb. It can also reveal how much money you need to free up or earn to keep your finances on track. A concrete goal will be beneficial as you move into these other options.
2. Contact your creditors
Creditors may have exclusive debt relief options and payment modification programs that you can use, but you must contact them first and explain your situation. You may qualify for hardship options like due-date extensions, modified payment plans or permanent changes in monthly due dates.
For homeowners, a mortgage modification can help keep you in your home. This option may increase your overall debt balance, but it also makes your monthly payments more manageable. Eligible borrowers may receive a lower interest rate, extended repayment term or reduced balance. For credit card debt relief, you might call your issuer and ask them to waive or reduce late fees to make repayment more affordable.
No matter your approach, don’t be afraid of asking for debt help. You won’t be punished by creditors for exploring your options.
- Have not yet spoken to creditors to explore debt relief options.
- Are behind on payments or would benefit from a different payment due date.
- Would benefit from rolling an outstanding debt into their loan balance.
- Have debt that hasn’t yet gone to collections.
- Can consistently make smaller payments over a longer period.
How to get started
Review your most recent bills and look for instructions for reaching out to creditors. You can find contact information on your bill, online or on the back of your card, if applicable.
When you call creditors, explain your situation — whether you’re dealing with unemployment or an emergency — and ask what debt relief or discount programs they offer. If you have a track record for on-time payments, use that as leverage when requesting payment assistance.
It’s possible to negotiate medical bills. Call your medical provider’s billing department, ask for an itemized list of costs and dispute anything that looks amiss. Be honest that you’re struggling with the payments. Ask about any payment assistance programs (sometimes called “charity care”) or if they’ll reduce what you owe.
3. Seek credit counseling
Credit counseling, also known as debt counseling, is offered by nonprofit organizations and aims to help consumers manage their money and debt.
When you work with a credit counselor, they might help you adjust your budget, prioritize your bills and work with your creditors to stop collection actions and pause fees through a debt management plan.
- Aren’t sure where to start with debt management.
- Prefer to get budgeting and money advice from a trained, unbiased professional.
- Need additional resources to get a handle on finances.
How to get started
You can find qualified credit counselors through the National Foundation for Credit Counseling (NFCC). Be prepared to meet with a counselor for at least 30 minutes, and have your relevant financial information ready — such as your household income, monthly expenses and total debts.
4. Enroll in a debt management plan
Credit counseling agencies often offer debt management plans that consolidate monthly debt payments into a single installment, paid to the counselor who then distributes it to your creditors. The counselor works with your creditors to potentially lower interest rates and waive or reduce fees so you can get a better handle on your debt.
Debt management programs typically last three to five years and aim to eliminate your debt.
- Feel overwhelmed by multiple debt payments each month.
- Are ready to stick to a payment plan for three or more years.
- Are comfortable closing some lines of credit to limit additional debt during the program.
How to get started
Debt management plans are offered by credit counseling agencies and organizations like the American Consumer Credit Counseling. Be prepared to attend a meeting or counseling session to learn about debt and financial management processes. You should also expect to share information about your income, monthly bills and debts with a certified counselor.
Come to your meeting with questions, such as how the debt management plan works, which credit accounts you may be expected to close and potential fees. If you worry about affording fees, mention this to your counselor.
5. Consolidate your debt
Debt consolidation uses a new loan to combine several debts, such as personal loans and credit cards, into one. The goal here is not only to consolidate bills under one payment, but to reduce the overall interest rate to save money.
Another key benefit of debt consolidation is the ability to choose a new repayment term. With a loan, you can set a longer repayment term to reduce your monthly payments. This would keep you in debt for longer and increase your overall interest charges, but it makes repayment more affordable. A shorter repayment term, on the other hand, would increase your monthly payments but reduce your overall cost of borrowing and get you out of debt sooner.
Debt consolidation is typically done using a debt consolidation loan (also known as a personal loan) or balance transfer credit card. However, you can consolidate using other products too, such as a home equity loan.
- Can secure more affordable terms on a loan or line of credit than they are currently paying.
- Can avoid new debt after consolidating their old debt.
- Can complete payments under the terms of the new credit account or loan.
How to get started
When exploring debt consolidation, first compare your borrowing options. You can prequalify with lenders to see whether you’d likely qualify for a loan or line of credit, and under which kinds of terms. The prequalification process doesn’t affect your credit and only requires basic information. Then review the lenders’ fees and interest rates.
At LendingTree, you can compare loan rates from top lenders in the U.S. for free. Just fill out one form, and up to five of our partner lenders could give you offers at once. Don’t worry, looking at these rates won’t mess up your credit score at all.
Once you’ve selected a lender that works for you, you can submit a formal application, which will affect your credit in a small way. If approved, you can use your new loan or line of credit to pay off your existing debt. Some lenders will even pay your creditors for you.
Some lenders offer bad credit debt consolidation loans. The terms may not be as favorable, so it’s important to shop around.
You can also explore getting a cosigner to increase your approval odds. Otherwise, a secured loan may be a more affordable option, as you’ll back the loan with collateral, such as your car or home. Having collateral reduces the lender’s risk because they can seize the asset if you fail to repay the new debt.
6. Consider debt settlement
Debt settlement, when handled on your own, can be a viable way to get out of debt. Consumers can negotiate their own debt settlement by reaching out to their creditors and proposing revised payment plans along with reduced interest rates, fees and sometimes balances.
Although you may find third-party debt settlement programs, they should generally be avoided. These programs ask you to stop making payments in an attempt to force creditors into offering a lower payoff amount. However, this strategy is not guaranteed to work and will likely hurt your credit. Furthermore, these programs charge high fees and are often rife with debt consolidation scams.
- Have time to devote to reaching out to creditors.
- Are able to keep track of progress and agreements.
- Are currently experiencing a financial hardship they can document for creditors.
How to get started
List all of your debts and create a sustainable budget, so you know what kind of payments you can offer creditors. In some cases, if you’ve recently come into a lump sum of money, you may be able to negotiate for a lower payoff amount than what you owe.
When you know what you can offer, reach out to your creditors and start negotiations. Be prepared to play hardball in some cases to get debt relief.
7. Weigh bankruptcy options
If full repayment of your debt seems completely out of reach, then bankruptcy might be a fresh start to consider. Though bankruptcy stays on your credit report for several years, a recent LendingTree study found that the average bankruptcy filer’s credit score goes up 69 points one month after filing.
The two most commonly filed consumer bankruptcies are:
- Chapter 7 bankruptcy: This is a liquidation bankruptcy, where a professional helps sell your eligible assets to pay off some of your balances. Any remaining unsecured debts are discharged. Qualification for this type of bankruptcy is partly based on a means test that checks your income.
- Chapter 13 bankruptcy: Under this type of bankruptcy, you’ll create a plan to repay your debts over three to five years. Any remaining balances are discharged once the plan is completed.
- Meet qualification requirements, which vary based on the type of bankruptcy you want to pursue.
- Don’t have any other debt relief options.
- Are comfortable creating a three- to five-year repayment plan and sticking to it.
How to get started
Bankruptcy is not something that you should file for alone. Consult a bankruptcy attorney to help you determine the unique filing requirements of your local bankruptcy court. After filing, you’ll also need to attend a debtor education class and submit a certificate of completion.
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