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What Is Debt Relief and How Will It Affect Me?

October 12, 2020

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Debt relief is partial or total cancellation of debt. 

There are some ways to do this that can give you a little more breathing room with your money, but don’t get swept away by the promises of debt relief companies. 

Here’s what you need to know

1. Debt Relief Services: Avoid These

If you Google debt relief, the top ad results will show you many debt relief or debt settlement companies. 

Usually, they promise to help you manage your debt by changing its. That could mean lowering your interest rate, your monthly payments, or both. 

It could also mean agreeing on a settlement, which is a lump sum you’ll pay to your creditor (the company you owe money) to settle your debts. This is usually lower than the total debt you initially owed. 

When you work with a debt relief company, they negotiate with your debt holder. They charge you a fee to do this, and those fees can be high. 

If debt relief services sound too good to be true, it’s probably because they are. The Consumer Financial Protection Bureau (CFPB) warns, “Dealing with debt settlement companies can be risky.”

It’s fairly common for debt relief companies to be unable to settle all of your debts. You’ll still have money due—and you’ve paid the debt settlement company money that could have gone directly to your debt. 

Consequences of using debt relief services
Choosing a debt settlement company usually means paying them fees and giving them money they promise to distribute to your creditors. But if they can’t reach an agreement with those creditors, all the money you gave the debt relief service could be for nothing. 

2. Non-Profit Credit Counselors: Best for Advice

A non-profit credit counselor may be able to guide you through your debt.

You may still have to pay a fee, but non-profits usually are working to help.

These credit counselors advise you on how to handle your debts. They should help you map a plan—called a debt management plan (DMP)—to get out from under them. 

If you’re interested in working with a credit counselor, we recommend reading this guide from the Federal Trade Commission. 

Consequences of working with a credit counselor

If you choose a reputable credit counselor, you should get a clear plan out from under your debt and minimal drawbacks beyond some basic fees. 

3. Debt consolidation: best if you have good credit

With debt consolidation, you roll multiple debts into one, preferably with a lower interest rate. 

If you have good credit, you can do this by opening a balance-transfer credit card that offers 0% interest for an introductory period. 

Transfer all of your debts there to avoid paying interest on them. Make sure you can pay all the debt off before the 0% interest rate expires. 

You can also roll multiple debts into one through a debt consolidation loan. 

Consequences of debt consolidation

Debt consolidation gives you a single debt to manage. Unfortunately, you might not be offered this option if you have a low credit score.

4. Proactive work on your debt: best if you’re willing to put in the work

You don’t necessarily need to enlist the help of a debt relief service or credit counselor to chart a path to becoming debt-free. To skip the fees charges by both, DIY it.

Spend time working on your budget to free up more money to pay your debts off. Determine how much money you can realistically pay each month toward your debts.

Then, call your creditors. 

Many offer hardship programs. If you call and tell them you’re having trouble paying the amount due, they may be able to work something out with you. 

Explain how much you can pay them each month and see what agreement you can reach. If you’re willing to put in the elbow grease, you can potentially get lowered payments and/or a lower interest rate.

Read this guide from the CFPB if you’re thinking about taking this proactive approach. 

The consequences of taking a DIY approach to your debt

No cons here other than the work you’ll have to put in. For it, you’ll gain a better understanding of your debt relief options and can potentially get yourself some breathing room. 

When it comes to debt relief, you have options. Start exploring the ones that sound best to you today. Soon, you’ll be able to see your way out from under your debt. 

Opinions, advice, services, or other information or content expressed or contributed here by customers, users, or others, are those of the respective author(s) or contributor(s) and do not necessarily state or reflect those of Varo Bank, N.A. Member FDIC (“Bank”).. Bank is not responsible for the accuracy of any content provided by author(s) or contributor(s).

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Kacie Goff

Kacie Goff

Kacie Goff has over five years of experience writing personal finance content for a wide range of audiences. She's always loved taking complex concepts and distilling them down so they're more accessible to others. As she creates content, she aims to educate and engage, helping people discover that successfully managing their money can be easier than they ever imagined. Over the last five years, she’s also covered personal and commercial insurance, home design, health and wellness, and more for publications including Bankrate, Freshome, The Simple Dollar, and websites of a broad variety of businesses. Her brand is Jot Content (

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