Debt Relief: What Programs Are Available?

Carrying a large amount of debt can be crippling, especially if it’s more than you can reasonably afford to pay off. It can overtake all other financial priorities in your life. The good news is that there are many debt relief programs to help you with overwhelming debt.

Whether it’s credit debt consolidation or a transfer from high-interest credit cards to lower-interest balance-transfer credit cards, for any debt relief plan to work, it’s important to first have a goal. After that, you’ll need a clear picture of your current financial state; then you’ll be able to choose a strategy that fits. Here’s a look at a few ways you can manage your debt with some help.

Debt Relief During a Global Crisis

The COVID-19 pandemic may lead even more Americans to search for debt relief programs. The Bureau of Labor Statistics’ data shows that unemployment jumped from below 4% to nearly 15% between February and April of 2020. Additionally, according to a new survey from Quicken Inc., 40% of Americans expect the pandemic to impact them as much as or more than than the 2008 crisis.

Under the direction of the Federal Deposit Insurance Corporation (FDIC), numerous lenders, financial institutions, credit card companies, and service providers are offering programs to assist with debt relief during COVID-19. These include credit card companies and mortgage lenders offering options to skip payments, late fee cancelations, lower interest rates, and more. Many government agencies are offering expanded financial assistance as well. The Corona virus Aid, Relief, and Economic Security (CARES) Act, passed by Congress in March 2020, expanded unemployment programs and provided stimulus payments to many Americans.

If you find yourself struggling during the pandemic, don’t hesitate to seek help through one or more avenues.

What Is Debt Relief?

Debt relief is a strategy meant to resolve or deal with a large amount of personal debt. It’s a process of working with your creditors to develop a plan for paying back your debt in a way that will satisfy them, stop the phone calls from collectors, and avoid long-term damage to your credit. Ultimately, it’s a way to reduce your stress and make your debt more manageable.

Every debt relief plan starts by getting a clear view of the debtor’s entire financial picture. That simple step—understanding the problem and beginning to see a goal—can be a significant stress reliever. In fact, taking practical steps to reduce debt can reduce its strain on your mental health, improve cognitive functioning, and reduce stress.

Debt relief doesn’t always mean paying off or forgiving the debt all at once. It can be as simple as negotiating a few skipped payments or a lower interest rate. In many cases, it’s simply a strategy to restructure or reorganize the debt so the payments are more manageable. This helps the debt-holder and also satisfies the creditor, who often would rather receive a lower, negotiated payment than nothing at all. In extreme circumstances, it may involve filing for bankruptcy.

When to Look for Debt Relief

It’s not always easy to decide when you need help dealing with debt. But there are some common signs to look for that may indicate you’re in over your head:

  • Your debt-to-income ratio is too high: The amount of your gross income that goes toward debt payments each month is an important number for lenders. Most lenders won’t give you new credit if your debt payments exceed 43% of your monthly income.
  • You can’t get your credit utilization under control: Your credit utilization ratio measures your total credit card debt against your limit and is worth 30% of your credit score. If you consistently spend more than 30% of your credit limit, your credit score will suffer and make it harder for you to get loans with favorable terms.
  • You’re paying off credit cards with other credit cards: It’s one thing to transfer a balance occasionally, but if you can’t manage your payments without opening new cards, you may have a problem.

The bottom line is this: If you feel so overwhelmed by debt that it’s causing significant financial or emotional strain in your life, it’s probably time to seek some kind of help.

Types of Debt Relief Programs

If you decide to seek relief, there are several options for how to handle your debt.

Debt Consolidation Loans

A debt consolidation loan is a large personal loan that is granted to cover all (or most) of your other debts. It’s helpful for debt relief since it allows you to have one monthly payment, which can make it easier to stick to a debt payoff plan and fit your debts into a monthly budget.

These loans can be secured by collateral, such as your house, or they can be unsecured if your credit is good enough to qualify. The interest rate on a secured loan will usually be lower, but you might still pay more interest over the long haul if your new loan terms are much longer than the terms on your original debts.

Examples of debt consolidation loan providers include SoFi, Marcus by Goldman Sachs, Avant, and Discover. A debt consolidation loan may initially cause your credit score to take a hit as you add a new loan to your credit report. However, your score will improve steadily over the coming months, provided you make your payments on time and you don’t add more debt.

Before you sign on the dotted line, be sure to read up on your loan’s terms, as well as its interest rates. Debt consolidation loans’ interest rates range from around 6% to nearly 36%.

Debt Management Plans 

A debt management plan facilitated by a non-profit credit counselor is another option. A credit counselor will help manage and organize your finances and help you develop a debt payoff plan if you really need one. They may help you negotiate with your creditors to get better rates or extend your payment period.

This kind of assistance and counseling can provide some much needed accountability and structure for your debt relief program. Be sure, though, that you ask what the fees are for their services before you start. If their rates are only going to add more financial burden, or if they get paid more when you sign up for certain services, then look elsewhere. Likewise, be sure your counselor is from an accredited nonprofit, and that they don’t push debt consolidation plans as the only option for debt relief.

Working with a nonprofit credit counselor—even when that includes a debt management plan—usually won’t affect your credit score, unless you’ve negotiated a settlement. You might see a minor impact from closing accounts, but your score will rebound over time.

Alternatively, there are for-profit companies that can help you restructure or consolidate your debt. These companies collect payments from you, then once you have a certain amount, will approach your creditors and try to negotiate lower payments then. However, these companies are not always reputable and because they will withhold payments to your creditors for months, your credit score could drop significantly.

Balance Transfer Credit Cards 

If a large chunk of your debt is made up of credit card debt, then a balance transfer may be your answer to credit debt relief. A substantial amount of credit card debt usually means you’re paying quite a bit in interest, since the average credit card APR is 20%. This is especially true if you’re only paying your card’s minimum payment.

Transferring your credit card debt to a low or zero APR balance transfer credit card is a good way to get a jump on paying down your balances. Unfortunately, most of these offers include a fee to transfer each balance (usually a small percentage of the transferred amount), and those low-interest balance transfer APRs usually only last a limited time. To make this work, you need to pay the transferred balance before the introductory rate period ends. You should also avoid adding new debt on top of your transferred debt.

Filing for Bankruptcy

When considering which debt relief option is right for you, you may think that bankruptcy is your best option. After all, it will not only eliminate your debt, but allow you to start over with a clean slate.

But bankruptcy can have long-term effects on your finances and your credit. Bankruptcy will cause your credit score to drop dramatically and will stay on your financial record for seven to 10 years. It may make it difficult for you to qualify for new loans or good terms for a long time.

There are two ways to file for personal bankruptcy: Chapter 7 and Chapter 13. Filing for Chapter 7 will eliminate all your debt, but will also liquidate your other assets, apart from some exempt property. Then the proceeds will go toward your debt. When you file for Chapter 13 bankruptcy, you come up with a three- to five-year payment plan, which has to be approved in a bankruptcy court.

While it seems like an easy solution, filing bankruptcy should be your last resort when considering debt relief options. Always talk with an attorney to discuss all of your choices before going this route.


Whatever plan you decide on, be sure you know all the stipulations and you can afford to make your new committed payments. Your plan should go beyond just making your debt payments, too. You’ll need to make an extra effort in every area of your finances to ensure you succeed.

This means setting up a budget—possibly a cash envelope system if you have trouble sticking to your spending plan. You may have to make significant cuts to some areas, such as entertainment or dining out. In your budget, be sure you include a plan for building up your emergency savings even while you’re digging out of debt. Otherwise, you’re only one emergency away from another debt crisis. If your credit is damaged, you may need to get a secure credit card so you can start the rebuilding process.

Once you decide on a debt relief program, it’s critical that you stick with your plan. The habits of disciplined budgeting you develop now can stay with you for a lifetime. You’ll find it easier to reach for other financial goals such as retirement once you’ve succeeded with a debt relief plan.

Most important, though, is that you know you have options for finding debt relief when you need it.

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