What Are Debt Relief Services?

When debt feels like it's piling up, finding a way forward is possible. Debt relief services could help you reduce your debts. They can negotiate with your creditors on your behalf. Debt relief services can help with looming credit card debt, medical bills, and other unsecured debts. 

Working with a debt relief services company could make it easier to manage your finances – and help you sleep at night. Financial stability could help improve your emotional well-being and let you feel more in control.  

This guide will walk you through debt relief services and how they work. From there, you can explore your options and take a step toward gaining financial peace of mind.

What Are Debt Relief Services?

Technically, debt relief is anything that eases the burden of your debt. These services encompass a range of strategies, such as: 

• Debt settlement

• Debt management plans

• Debt consolidation

The goal is to provide a structured approach to dealing with debt, sometimes by negotiating with creditors to reduce the total amount owed. Other times, by creating a manageable payment plan. 

Debt relief services are typically sought by people who are overwhelmed by debt and can't keep up with their monthly payment obligations. Working with a reputable, trustworthy debt relief company could offer a viable alternative to bankruptcy.

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How Debt Relief Services Work

Debt relief services typically begin with a one-on-one consultation. Someone from the debt relief company will take a careful look at your financial situation. They'll pore over details like:

• The types of debt you owe

• Your income

• Your ability to make payments

Based on this assessment, they’ll recommend a customized debt relief strategy, such as:

Debt Settlement

Debt settlement is when your creditor agrees to accept less than the full amount you owe but consider the debt paid in full. The rest is forgiven. Your creditor may agree to a lump-sum payment or a series of payments. 

You can settle debts yourself or work with a professional debt settlement company. If you don’t have money to offer, you’ll need to set some aside each month until you are ready to negotiate. Some people choose to stop making payments on their debts while they save up money for settlement offers, because it can be hard to afford both. Missing payments is almost guaranteed to have a negative impact on your credit. Even so, settling debts could help you get back on your financial feet.

Debt settlement works for unsecured debts like credit cards and personal loans. It doesn’t work for secured debts like mortgages and car loans. Also, you generally can’t settle student loans.

If you’re in a professional debt settlement plan, a debt expert will handle all negotiations and logistics, and support you through the process. You should get a chance to review any agreements with creditors before they are final.

Debt Management Plans (DMPs)

DMPs are usually offered through a non-profit credit counseling agency. In a DMP, a counselor works with your creditors to design a payment plan. This plan lumps together your unsecured debts into a single monthly payment. These plans often include lowered interest rates and waived fees, making it easier for you to make headway against your debt with each payment. DMPs usually require that you close your credit card accounts and agree not to apply for new ones while you’re in the program. That limits your access to credit. 

Like debt settlement, DMPs work for unsecured debts like credit cards and personal loans.

If you’re in a DMP, the credit counselor will manage your payments, communicate with your creditors, and oversee your plan. They’ll help you create a realistic budget for your income, too.

Debt Consolidation

Debt consolidation is when you take out a new loan to pay off multiple existing debts. Not only does this streamline your payments, but the new loan might have a lower interest rate, which could save you on interest. It might also have a monthly payment that’s lower than the total of the monthly payments you were making on the debts you consolidated. A lower payment could make your debt more manageable.

If you get a consolidation loan, the lender may be willing to pay off your debts directly so that you don’t have to do so once you receive the loan funds.

The big-picture end goal for all of these options? To reduce your overall debt burden and ultimately help you clear your debt.

What Does Debt Relief Cost You? 

Like any other reputable debt relief services company, Freedom Debt Relief earns money when clients pay us to settle their debts. No reputable debt relief firm may charge fees at any other point, for any other reason, per regulations established by the Federal Trade Commission (FTC). 

The fee is typically a percentage of the total debt enrolled in the debt-settlement program and can vary depending on the client’s state of residence.

Once negotiations are complete and a creditor agrees to a lower settlement, you’re presented with the settlement agreement for approval. After you approve the settlement, the payment(s) will be processed to the creditor directly from your special-purpose dedicated account. Once at least one payment has been made, the debt settlement company may charge its fee.

The debt settlement company will set up the dedicated account for you at an FDIC-insured bank. It’s your money and you always control it and have access to it. This is where you’ll build funds for making settlement offers.

Sometimes a settlement is made using one lump-sum payment. In other cases, settlements may be structured, which means the funds are paid in multiple payments over time. When the agreement is complete, the debt is considered resolved with the creditor, and the debt-resolution services on that debt are complete.

Learn more about debt relief and how it can help to reduce what you owe. 

Types Of Debt Eligible For Debt Relief Services

Usually, only unsecured debts are eligible for debt relief. Unsecured means the debt isn’t tied to an asset like a car or house. Examples of unsecured debts include:

• Credit-card balances

• Department store charge-card debts

• Personal loans

• Medical bills

• Some private student-loan debt

Debt settlement will not work with some kinds of debt, such as secured debt (a loan secured by a tangible asset). Examples of obligations that usually can’t be negotiated include: 

• Vehicle loans

• Mortgages or home loans

• Federal student loans

• Other government loans

• Recent tax debt

There is small-business debt relief, but it isn’t as straightforward as other types of unsecured debt. For example, if you’re a small-business owner and use personal credit cards for business expenses, debt from those cards could be enrolled in a debt relief program. However, a debt relief company typically can’t help with other business debts, like bank loans or Small Business Administration (SBA) loans. 

Every option for eliminating debt has advantages and disadvantages. Specific pros and cons associated with debt relief services are essential to keep in mind. 

Pros of Debt Relief Services

Here are some of the main upsides associated with debt relief: 

• Could resolve all enrolled debt: The debt settlement company will enroll eligible debts that have a good chance at being resolved. Creditors, however, are never obligated to negotiate. No reputable debt settlement company will promise or guarantee that they will be able to settle all of your debts. Settling debt doesn’t just move higher interest-rate balances to a lower rate, the way that debt consolidation can. Instead, debt relief works to lower the principal balances you owe, so you can put it behind you faster than you could by making minimum payments.

• Streamlines debts into one monthly payment: debt relief services can make paying debt less complicated, since you make a monthly deposit into a dedicated account in an amount that fits your budget. This deposit could be less than the minimum payments on your credit cards or monthly payments on a debt-consolidation loan. The deposit could also be lower than the monthly payment in a debt management plan offered by credit-counseling agencies.

• Costs less than alternatives: While debt relief services are not free, the goal is to resolve your debts for as little as possible, including fees. 

• Has better repayment terms than bankruptcy: The payment in a debt relief program is typically lower than a Chapter 13 plan payment, and the length of the plan could be shorter. Plus, settling balances helps people get rid of debt without leaving a permanent bankruptcy judgment on their record.

• No conflict of interest with creditors: Credit-counseling agencies are typically funded by credit card lenders. Debt relief companies work for the consumer.

• Encourages better money habits: The best debt relief companies help clients learn to create and use a budget, as well as incorporate personal-finance best practices into their lives. Many people also benefit from the discipline required in making regular deposits into the dedicated account that funds their debt settlements.

Cons of Debt Relief Services

Here are a few reasons to think twice about debt relief:

• Impact on credit reports and scores: Most people in a debt relief program choose to stop making payments on their debts. This allows you to save money for settlement offers. It also signals to the lender that you’re in financial distress, which could make them more willing to negotiate. Stopping payments will negatively impact your credit reports and credit scores. 

• Creditor or collection-agency calls: Because you’re past due, creditors may continue contacting you while you’re using debt relief services. Freedom Debt Relief offers options and information to its clients on how to handle these phone calls; but such calls can still be troublesome to deal with. 

• Potential legal action: Some creditors may threaten or take legal action for repayment, regardless of your attempts to negotiate a lower balance. A good debt relief company will support its clients through this process. At Freedom Debt Relief, if a creditor files a debt lawsuit against you, we may offer the services of an attorney. They won’t represent you in court, but they’ll try to negotiate an agreement with the creditor and head off the lawsuit. This offer only covers debts enrolled in your debt settlement program, and only for clients who have made all of their program payments on time and in full.

Who Is Debt Relief Right For?

Whether you should use debt relief can depend on the details of your situation. 

Debt relief services are best for people who are:

• Struggling with at least $7,500 in unsecured, high-interest, debt

• Unable to keep up with payments on these debts

• Suffering a hardship—divorce, the death of a spouse, job loss, or unexpected medical expenses—that makes it difficult to have extra income to put toward debts

• Looking for a solution that is affordable and will help them put their debt behind them—rather than just looking to consolidate their existing debt into a new type of debt (like a loan)

Debt relief usually isn’t suitable for someone focused on maintaining a high credit score while eliminating debts. During debt negotiations, you need to be comfortable with the idea that your credit score could go down before it goes up again. 

If you have a high credit score and want to protect that score, a debt-consolidation loan may be an option. Learn more about when it is a good idea to get a debt-consolidation loan.

DIY vs. Hiring a debt relief Company

Negotiating debts can be time-consuming and frustrating. You might not understand your rights concerning debt collections or be intimidated by debt collectors or creditors who use underhanded tactics to pressure you into paying. That’s why many people turn to professional debt relief companies, like Freedom Debt Relief, and the expert negotiators they provide.

Debt relief services could save you the trouble of talking to creditors directly to try to work out a deal. 

You’ll pay a fee for these services, which reduces your savings. 

We’d be happy to talk to you if you’re considering debt settlement. You can call a Freedom Debt Relief Certified Debt Consultant anytime at 800-230-1553. We also encourage you to look at other debt relief service providers so that, if you choose to enroll in our program, you are fully confident you are making the right choice.

Debt relief vs. Bankruptcy

Many people who consider debt relief services also consider bankruptcy as an option. As with debt relief, filing for bankruptcy is a serious decision with a lot of pros and cons to consider.

The specific requirements, terms, and results of bankruptcy will depend on the type of bankruptcy you qualify for, if at all. First, see whether you can file Chapter 7 bankruptcy or if Chapter 13 is a better fit for your situation.

Chapter 7 bankruptcy

When you think about bankruptcy the way it happens in the game of Monopoly, where everything is suddenly wiped away, then you're thinking about Chapter 7. 

Also called liquidation bankruptcy, Chapter 7 can wipe out unsecured debts, but you might have to give up some of the things you own. You don’t have to give up the clothes on your back, but there’s a limit to how much you can keep. Above those limits, the courts will sell your assets and give the money to your creditors.

Chapter 7 won't help you catch up on missed mortgage payments or otherwise assist with secured debts. 

You can only qualify for Chapter 7 if your income is below a certain level.

Pros of Chapter 7 bankruptcy:

• Can discharge (forgive) a lot of unsecured debt

• Some assets are exempt from liquidation

• Typically only takes three to four months

• May be an option for some businesses

Cons of Chapter 7 bankruptcy:

• Income must be low enough to pass the means test

• Nonexempt assets can be sold to pay creditors

• Generally only works for unsecured debts

• Hangs around on your credit report for up to 10 years

Chapter 13 bankruptcy

Chapter 13 bankruptcy is often termed as reorganization or wage-earner bankruptcy. Instead of your debt being wiped out, Chapter 13 bankruptcy is a structured debt repayment plan.

Chapter 13 could give you a chance to get caught up on your mortgage if you’re behind. 

You'll need to stick to your repayment plan like glue, and you'll still be on the line for some or all of your unsecured debts.

Pros of Chapter 13 bankruptcy:

• Can catch up on overdue secured debts, for example to avoid foreclosure

• Generally easier to rebuild credit after Chapter 13 than Chapter 7

• Nondischargeable debts can be put on a payment plan

Cons of Chapter 13 bankruptcy:

• Requires you to make monthly payments

• Usually takes five years to complete

• May not work for all debts

• Not an option for businesses

When to choose debt relief over bankruptcy

Whether bankruptcy or debt relief is the better option for you will depend a lot on your individual situation. You may consider debt relief over bankruptcy if you:

• Don't qualify for Chapter 7 bankruptcy;

• Have mostly unsecured debts

• Want to get out of debt for less than you owe.

What to Look for in a Debt Relief Services Company

If you’ve decided to hire a debt relief company, it’s important to know what to look for to find legitimate and credible help. Unfortunately, not all such companies have the history and experience to get the best results for their clients.

• Length of time in business: The value of debt relief lies in the quality and effectiveness of the negotiation. The better job the debt relief company does in negotiating, the lower your settlement—and the higher your savings—will be. A debt relief services company with a long history of negotiating debt means it should have greater expertise and insight.

• Open communication: The employees at the debt relief company must be ready and able to answer any questions about how the process works, what you should expect, and what the fees will be. Beware of vague answers. Transparency into how the debt-settlement process works is critical. Debt relief programs are a commitment that can take a few years to complete, so you want to know you are working with a supportive company that will be there for you when you have questions.

• Happy clients: Search trusted review sites to learn what it’s like to be one of the company’s clients. Note that just because a review website has long articles and appears to be objective doesn’t mean that it is objective. Look for words and phrases, such as “sponsored content,” “ad," or other disclaimers, showing that the so-called reviews are actually paid advertisements. Also, beware of any debt relief review websites that include many companies but don’t include Freedom Debt Relief. As the largest and arguably the most established debt relief company in America, if we aren’t included in a review of top debt-settlement companies, that website isn’t thoroughly examining your options.

• Trained debt counselors: The company’s Certified Debt Consultants should be experienced and trained in debt settlement.

• Membership in industry organization: The American Association for Debt Resolution (ADDR) enforces a strict code of conduct for its members. Debt settlement companies can join the AADR only if they comply with the Federal Trade Commission regulations for the industry. For these reasons, AADR membership is one sign of a reputable company.

Questions to Ask Debt Relief Companies

How a debt relief company responds to your questions will help you assess whether it provides the level of integrity, experience, savings, and customer service you expect and deserve. To choose the debt relief company that can best help you eliminate your credit card and other debt, make sure to ask these four questions:

• How much will the program cost each month?

• What are the program’s negotiation fees?

• How many creditors have you settled debts with?

• Where can I read client reviews from real clients?

If you ask these questions and get vague answers, ask yourself if this is a company you could feel comfortable working with for the next 2 to 4 years. Trust your instincts when evaluating a debt-negotiation plan. If your “gut feeling” about a debt relief company is negative, the chances are it’s not the best fit for you.

Remember, debt relief is not the best debt solution for everyone. It requires you to have a solid commitment to getting out of debt, learning how to budget and live within your means, and being comfortable with having your credit score impacted. But for many, it can help them resolve their debt for good and get on solid financial ground.

Is your debt relief company legit? Find out how to identify a debt relief scam.

Take the Next Step

If you think debt relief services might work for you, call us at 800-230-1553. Our Certified Debt Consultants are ready to answer your questions. Or complete our online form right now to see if you qualify. You’ll also get a free estimate of how much the program could save you and how quickly it could help you put your debt behind you.