Debt Relief Myths and Realities

If you’re behind on bills, have overdue credit cards, or are otherwise struggling to manage your debts, you might be looking for debt relief. Even if you’re in a tough financial situation right now, you have choices—and you’re not alone. There are a few ways you can get help with debts and move toward a brighter future. 

Your situation will determine what type of debt relief you pursue. But sometimes people hold back from getting the right kind of debt relief because of misunderstandings and mistaken information. 

There are a lot of myths about debt relief. Let’s look at a few of the biggest debt relief myths—versus the real story. 

Myth: “Debt Relief Hurts Your Credit” 

Reality: Enrolling in a debt relief program won't directly affect your credit score. The fact that you're working with a debt relief company doesn’t show up on your credit report. 

That said, it's true that you'll likely experience credit score damage while going through a debt relief program. The cause of that damage isn't the program itself—it's missed payments. 

Many people who seek debt relief have already made late payments or gotten far behind on their debts. Additionally, most people who enroll choose to stop making debt payments while they save up for settlement. In both cases, missing payments could cause your credit scores to drop significantly.

That doesn't mean you should automatically discount debt relief, though. You can rebuild your credit over time, and that process will likely be a lot easier if you don't have overwhelming debt holding you back.

Freedom Debt Relief is not a Credit Repair Organization and does not provide or offer services or advice to repair, modify, or improve your credit.

Myth: “Debt Relief Programs Force You to Stop Making Payments on Debts” 

Reality: Reputable debt relief companies cannot—and do not—tell customers that they must stop making debt payments. Many people who look for debt relief have already fallen behind on payments. If you decide to stop making payments to your creditors as part of a debt relief program or debt settlement plan, it’s always your choice. 

That said, sometimes there are compelling arguments for stopping payments, depending on your situation. Creditors are often more open to negotiation when you're behind on your payments, since this shows you're struggling to afford your debts.

Plus, if you aren’t making monthly payments on credit cards or other debts, this can free up extra cash in your budget. Saving that money could help you build up a useful amount of cash so you’re ready to make debt settlement offers. Instead of making only the minimum payments on debts you can’t afford to fully repay, stopping payments may help with your plans to get rid of that debt with a debt settlement offer. 

Myth: “Debt Relief Is Not a Good Alternative to Bankruptcy” 

Reality: Filing bankruptcy can sometimes be the best choice—and sometimes not. Debt relief through debt settlement could be a better fit for some people in some situations.

Bankruptcy is a way to seek legal protection against creditors, make debt collectors stop calling, and get your personal finances sorted out with the help of a court. The flip side of this is that you're bound to the court's decisions as much as your creditors are. Depending on the type of bankruptcy, you may also have to sell certain assets or abide by a court-mandated repayment plan.

Your credit won't come out squeaky clean with bankruptcy, either. It can take seven to 10 years for a bankruptcy to come off your credit report.

And not everyone is a good candidate for bankruptcy. Chapter 7 bankruptcy requires a means test, and you won't qualify if you make too much money. The alternative is Chapter 13, which requires you to agree to a plan to repay creditors all or part of the debt. About half of Chapter 13 bankruptcies fail, because people struggle to make the payments.

Debt relief could be a good alternative for bankruptcy, especially if you: 

• Make too much money to qualify for Chapter 7 bankruptcy

• Want to keep your debt problems private (filing bankruptcy creates a public record)

• Can afford to repay some (but not all) of your debt 

• Are experiencing financial hardship

If you think bankruptcy might be a good fit, talk to an attorney. But if bankruptcy turns out not to be the best solution, debt relief might help you have more control over your situation and move on with your life faster.   

This information is intended for general informational purposes only. It shouldn't be taken as legal advice. For personalized legal advice, consult with a qualified attorney licensed to practice law in your state.

Myth: “Debt Relief Is Only for Low-Income People” 

Reality: Many people who consider themselves middle class or who have higher household incomes might find that their debt is unmanageable. People often fall into financial hardship because of medical emergencies, serious illnesses or accidents, long-term loss of income, or other situations beyond their control. People from all walks of life can fall behind on bills and end up needing credit card debt relief for many reasons. 

Know that your debt does not define you as a person, and aim to use this as a moment of opportunity. Sometimes taking the first step to seek debt relief helps inspire greater clarity and energy to move forward in life. 

Don’t let myths or other people’s misunderstandings hold you back from getting the debt relief you need. You don’t have to go it alone. Working with a professional debt relief company could help you reduce stress and get rid of debt faster than you might be able to on your own.