What Are Debt Relief Loans?

One thing most people don’t like about being in debt is the constant feeling of scrambling and thinking about multiple payments. If some of your debts have high interest rates, that could squeeze your monthly budget even harder.

A loan for debt relief could be a big help by consolidating your debt into a single, more manageable payment. It could also save you money on interest.

Qualification for a debt relief loan depends on your credit and income. Every lender has its own standards, but you’ll likely need consistent income, and there may be a minimum credit score requirement. If you have a low credit score or probably can’t repay your debt in full, other options like debt relief programs could be a better fit.

If you qualify, a debt relief loan may be the right tool to get control of your debt. Let’s explore the different types of debt relief loans. We’ll walk you through the alternatives if you have bad credit and share some tips for choosing the best option for your financial situation.

What Is a Debt Relief Loan?

A debt relief loan is a way to reorganize multiple high-interest debts, like credit cards and personal loans, into a single new loan. Instead of several payments, you now make one monthly payment on this new loan. 

A debt relief loan could simplify debt management because it consolidates your debts. It could reduce your monthly payments and possibly lower your interest rate, which could help you save on interest. 

Eligibility criteria 

Debt relief loans are usually for those with a stable income and a qualifying credit score. There’s no one guideline for a qualifying credit score, but many lenders look for a credit score of 600 or higher. Some lenders provide loans to people with lower credit scores, so even with bad credit you could still have options.

For income requirements, lenders consider your ability to repay what you borrow. If your income isn’t enough to make your debt payments, a lender could deny your application.

If you’re ineligible for a debt relief loan because of your credit or your inability to repay your debt, you’ve still got options. For example, you could try debt settlement, where you or a debt relief company negotiate with your creditors to get rid of your debt for less than you owe.. 

What Can You Use Debt Relief Loans for?

You could use debt relief loans for practically any type of debt. Here are a few types of debt that you might consider refinancing with a debt relief loan.

Credit card debt

Most credit cards charge high interest rates, costing you money and making them harder to pay off. With a debt relief loan, you could secure a much lower rate on your debt.

Medical bills

A debt relief loan could be a way to spread out the cost of expensive medical bills over a repayment period that works for you.

Personal loans

If your personal loans have high interest rates or high monthly payments, you may be able to get better terms with a debt relief loan—especially if your credit has improved since you applied for the loans.

Emergency expenses

Large emergency expenses can strain your finances. Refinancing those expenses with a debt relief loan could give you some breathing room.

Benefits of a Debt Relief Loan 

A debt relief loan could streamline your finances because it combines multiple debts into one monthly payment. That single payment could be much easier to manage than keeping track of multiple bills with several due dates. In addition, a debt relief loan could: 

• Give you more time to pay 

• Simplify budgeting 

• Reduce the risk of missed payments 

• Save on interest if your debt relief loan has a lower rate 

• Improve your credit utilization ratio, which could help boost your credit score

Types of Debt Relief Loans

You have several options for a loan that accomplishes any or all of those debt consolidation goals.

Personal loan for debt consolidation 

A personal loan could replace multiple, higher-interest accounts with a single, lower-interest loan and provide a definite end date to your debt. 

Personal loan terms range from one to seven years or longer. Typically, personal loan interest rates are higher for longer terms. The longer you stretch out repayment, the more interest you’ll pay. Choose the shortest term that you can afford each month.

A personal loan could be an excellent way to reduce your interest rate if you have a lot of credit card debt. The average credit card interest rate in 2025 is about 21%. In contrast, the average personal loan rate for a two-year term is about 11.6%. 

Your actual interest rate will depend on your credit rating and financial situation. If your credit scores have fallen recently, you may not be able to get a better interest rate. If you’ve improved your credit rating, you might be able to save by consolidating debt with a personal loan. 

Even if a personal loan has a lower interest rate, its payments may be higher than your total credit card minimums. That’s because credit cards are designed to keep you in debt for decades while you have to pay personal loans off within a few years.

Balance transfer credit card

Another option could be to move credit card debt onto a new balance transfer credit card. This isn’t exactly a loan, but this strategy has many of the same benefits. The key is that you need to qualify for an introductory interest rate offer, which generally requires good credit.

Balance transfer credit cards typically have an introductory interest rate that could be as low as 0% for a period of up to 21 months. You get a break from paying interest during that time and could put more money toward reducing your balance. The trick is to pay down as much of your debt as possible while you have that break.

Three factors to think about with a balance transfer credit card are:

• Interest rate: The lower, the better

• Length of introductory rate: The longer, the better

• Fees: Most cards have a balance transfer fee. Look for one as low as possible, because they cut into your interest savings. Fees are typically 3% to 5% of the amount you transfer.

A balance transfer card could be a valuable tool to pay off debt, but it can backfire if you don’t pay off your debt inside the introductory period. Once the low APR period ends, your balance transfer card’s interest rate will increase quite a bit. Any remaining debt could then become very expensive. Make sure you have a plan for dealing with your debt before the end of the intro period.

Home equity loan

If you’re a homeowner and you’ve built up equity in your home, borrowing against that equity could be a way to get a relatively low-interest loan to replace higher-interest debt. 

Consider fees when working out how cost-effective this strategy would be. Also, a home equity loan is a mortgage secured by your home. Without a solid plan for repaying the loan, you could risk losing your house.

Cash-out refinance mortgage

A cash-out refinance mortgage lets you borrow against the equity in your home to refinance higher-interest debt with a lower-rate loan. The way a cash-out refinance works is by replacing your existing mortgage with a new mortgage that's larger than what you now owe. 

This alternative only really makes sense if you can lower the interest rate on your current mortgage and you require a relatively large amount of cash.

A cash-out option has extra mortgage charges, and those fees apply to the entire loan—not just the cash-out. Say you want $20,000 in cash, your total loan is $250,000, and your cash-out fees are 2% (not uncommon). It would cost you $5,000 in fees to borrow $20,000. 

Like a home equity loan, this debt consolidation strategy puts your property on the line. Before taking this approach, be sure you can keep up with payments. If you miss payments, the lender could take your home.

Are There Government Debt Relief Loans?

Generally, no. The government does offer some limited types of debt assistance, but not the kind you're likely thinking about. Most government programs for debt relief have to do with tax or federal student loan debt.

For example, if you owe money on your taxes, you may be able to work out an installment payment plan with the IRS. Also, various programs help you repay student loans, such as temporary payment forbearance, debt forgiveness under certain circumstances, and income-driven repayment plans.

The government does have one debt relief loan—the Direct Consolidation Loan. You may be eligible to consolidate specific federal student loans into one loan with no application fees. It also may be easier to get one of these than other types of loans if you have a limited credit history.

You may also be able to consolidate federal student loans with a private loan. However, replacing government-backed student loans with a debt consolidation loan could bring some unintended consequences. You’d lose certain benefits and protections, like student loan forgiveness and income-driven repayment. These programs are off the table once you refinance.

Tips to Choose the Right Debt Relief Loan

Choosing the right debt relief loan requires some thinking and maybe some pencil-and-paper calculating to make sure the loan lines up with your financial goals. Here are five tips to help you make an informed decision:

• Assess your debt. Start by adding up the total amount of debt you need to consolidate. Knowing this figure could help you work out the loan amount you need. It could also show if a debt relief loan is your best option.

• Compare interest rates. Look for a loan with a lower rate than your current debts. A lower rate could save you money over time and make your monthly payments more affordable.

• Check the loan terms. Pay attention to the loan’s repayment terms, including the length of the loan and any associated fees. Shorter terms may have higher monthly payments, but they save you money in interest over time. Longer terms could mean lower monthly payments, but they’ll likely cost more in the long run.

• Find out your credit score. Your credit score plays a big part in the interest rate and terms you’ll be offered. If your score is low, you may want to improve it before you apply for a loan. 

• Look at the lender’s reputation. Check out a few potential lenders to determine if they’re reputable. Are the terms transparent, so you can compare them with other lenders? Read reviews and check the Better Business Bureau to help avoid scams and predatory lending.

Debt Relief Loan Alternatives

It could be challenging to get any loan if you have bad credit. If you can’t qualify for an affordable debt relief loan, consider a different option. 

Debt management plan (DMP)

A credit counseling agency creates a debt management plan (DMP) and works with your creditors to make repaying your debt easier. A DMP won’t reduce the amount you owe. You can work with a credit counseling agency even if you have bad credit.

Credit counselors may negotiate lower interest rates, reduced monthly payments, and penalty waivers. This service may involve additional costs like debt management fees. Consider those costs and decide whether they are worth it to have a professional create a pathway out of debt for you.

Debt settlement

Debt settlement also involves negotiating with your creditors, but it may be a much tougher sell. 

Debt settlement means convincing your creditors to accept less than the total you owe as payment in full. A creditor isn’t obligated to settle with you, but might if you can demonstrate that repaying the entire debt isn’t possible. 

You will probably owe taxes on any amount that your creditors write off (unless you're insolvent). Debt settlement could impact your credit scores for years to come. That may not matter if your credit is already bad. And it may be easier to re-establish a good credit score if you reduce your debt load.

>>Check out Freedom Debt Relief reviews on YouTube

Bankruptcy

Bankruptcy is a legal process in which a court decides how much of your debt you can pay and how much your creditors must write off.

The advantage of bankruptcy is that your creditors have to participate and abide by the judge’s decision. The disadvantage is that filing is public and that you also must abide by the judge’s decision.

With Chapter 7, you may have to part with some assets to pay off some of your debts. With Chapter 13, you could wind up with a three- to five-year payment plan to pay off your debts. Bankruptcy stays on your credit report for seven to 10 years.

Find Your Best Debt Relief Option Now

The thing about debt relief is that the sooner you address your debt, the more options you have. As debt accumulates and your credit rating deteriorates, you have fewer options.

If you can get it, a debt relief loan is less drastic than some of the other alternatives. Step One is to review all the options and decide which is best for your situation. If you’re having a hard time with your debt and think that settlement could be more appropriate, get more information from our debt relief FAQs.