How Long Does Debt Relief Take?
- UpdatedJul 15, 2024
- Debt relief can take anywhere from a few months to a few years, depending on your method and resources.
- Options for debt relief include debt settlement, debt management, Chapter 7 bankruptcy, and Chapter 13 bankruptcy.
- Debt relief strategies are usually hard on your credit score, but you can recover by sticking with your plan.
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Debt struggles can seem like a never-ending nightmare, but there are a variety of debt relief options that can bring the nightmare to an end. Of course, there are no instant solutions to any serious problem. Any debt relief process will take time.
Getting a plan in place is the first step to breathing easier. Then you can start working on your plan to get rid of the problem altogether.
How long does a debt settlement program take? An overview
Debt settlement programs usually take 24 to 48 months to finish. The length depends on how much debt you have, your income, your other expenses, and your commitment to stick to the plan. You can do a debt settlement plan yourself, or you can hire a professional company to handle it for you. The steps are the same.
The time it typically takes to complete a debt settlement program includes:
A debt evaluation to assess your situation and develop a debt relief plan that works for you. This process takes about an hour and a half and is the first step toward setting your debt relief plan in motion.
Negotiate with your creditors to devise a payoff plan you can live with. The time it takes depends on your situation. Some creditors are more open than others to negotiate a workable payment plan. In some cases, you need to be ready to make a lump sum offer.
Complete the agreed-upon payment plans. This depends on the repayment period negotiated with each creditor.
The benefits of completing the program can stretch well beyond the time it takes to complete it. Debt settlement has proven effective in helping people improve their credit scores over time. It also reduces their chances of a future bankruptcy.
How long does debt settlement take? Here’s what to expect
You should go into debt settlement expecting the process to take 24 to 48 months to complete.
Each person's path to financial freedom is unique. The time involved depends on your situation. This includes how many accounts you’re trying to settle, how much debt you have, and how long you’ve owed the money.
Even with all the variables, knowing the usual timeline can give you some idea of what to expect:
Beginning the process: initial consultation and enrollment (Month 0-1)
Gather financial documents. Start by collecting all relevant financial info. This includes your income, expenses and total debt.
Choose a debt settlement company or self-manage. Research and select a reputable company or handle the negotiations yourself.
Open a dedicated savings account for settlement funds. Set up an account just for saving up the money to settle your debts. If you work with a professional debt settlement company, they will set this account up for you, but it’s still your money, and you always have access to it.
Months 1–48: Fund accumulation and negotiation with creditors
Make monthly deposits into the settlement account. Keep adding money to this account. This will build up the funds needed for settlements.
Stay in touch with the settlement company for updates. This will let you track your progress and receive guidance.
The company starts talks with your creditors to cut the debt. This process can start early and continue for some time.
Start closing out debts. Statistics show the typical debt settlement participant gets their first account settled about 4-5 months into the program.
Months 6–48: Reaching settlements and making payments
Continue to reach deals with creditors and start making agreed payments. As funds build and talks progress, finalize settlement deals with your creditors. Then, start making payments as agreed.
Ensure all settlement agreements are in writing. Get written confirmation of all settlements. This is to ensure they are legally documented and for your records.
The average account settlement takes just over 14 months to complete. The longer you stay in a debt settlement program, the more accounts you may settle.
Remember, these timeframes are general guidelines. They can vary based on your circumstances. Stay committed to the process and keep in close touch with your debt settlement company. This will help you move steadily toward financial freedom.
Debt relief options
If you can’t keep up with your debt payments, there are debt relief options you can consider. The goal they all have in common is to find a way to discharge your debt. Discharging your debt involves either finding a way to repay it or agreeing with your creditors to pay a reduced amount. Either way, discharging your debt means getting rid of that obligation once and for all.
Here are four common debt relief options:
Debt settlement. You or your representative will negotiate with creditors to reduce your debt. If they agree to accept a lower payment, your obligation is fulfilled. Having a debt settled for less than the full amount counts against your credit score, but that might not matter much. Most people who go forward with debt settlement are already struggling and have credit score damage. If your credit is already in trouble, debt settlement may be the best long-term pathway to rebuilding it. Credit scores tend to recover more quickly after debt settlement than after bankruptcy. Debt settlement usually takes 2-4 years.
Debt management plan. A DMP doesn’t reduce the amount you owe. However, a debt counselor may negotiate with your creditors to allow you more time to pay, or to reduce the interest rate or waive fees. The DMP doesn’t affect your credit score, but you’ll have to close accounts and that could cause your score to drop. DMPs usually last 3–5 years.
Chapter 7 bankruptcy. This is the most common form of bankruptcy. It’s also the quickest, typically taking less than four months from the time you file until the time your debts are discharged or forgiven. You'll have to pass a means test. If your disposable income isn't low enough, you might not qualify for Chapter 7. Also, if you have assets, you might be required to sell them. This form of bankruptcy stays on your credit report for 10 years—longer than a Chapter 13 bankruptcy or a debt settlement.
Chapter 13 bankruptcy. In Chapter 13, a court will decide how much you can afford to pay each month. You won’t lose your assets. The plan usually lasts about five years. If you complete the plan, any remaining debts are forgiven. Some people end up spending more on Chapter 13 (attorney fees, court fees, and debts) than they would have if they had just paid the debts off themselves. About 50% of Chapter 13 enrollees don’t have any debts forgiven. This form of bankruptcy will stay on your credit history for 7 years.
The actual time these approaches take, the amount it'll cost you, and the chances of success depend on the specifics of your situation. You can get a free evaluation to learn more about what a debt settlement plan might look like, so that might be a good place to start.
Comparing how long debt relief options take
Any comparison of debt relief options should consider the time it takes to go through the process and the long-term outcome of doing so.
| Debt Relief Option | Time to Complete | Long-term Outcome |
|---|---|---|
| Debt Settlement | 2 to 4 years | Pay less than the full amount owed. |
| Debt Management Plan | 3 to 5 years | Pay off all your debts in full. |
| Chapter 7 Bankruptcy | 4 months | Could lose assets. Ten years on credit history. |
| Chapter 13 Bankruptcy | 5 years | 50-50 chance of having any portion of your debts forgiven. |
Chapter 7 bankruptcy may be the quickest option on paper. However, that doesn’t tell the full story. If you have assets, they will be sharply limited by the court. For instance, if your home is paid off you won’t lose it but you might have to take a mortgage against it to pay off your creditors. Similarly, the court won’t allow you to keep an expensive car. Each state sets different limits.
The time it takes to get through the bankruptcy doesn’t account for the time it might take to replace the things you had to sell to get rid of the debt.
If you don’t have assets, Chapter 7 may be a viable option.
Credit score damage may be worse with Chapter 7 compared with debt settlement. On average, within three years after starting the process, people who complete a debt settlement program have higher credit scores than people who go through bankruptcy.
Doing nothing takes longer than any of these options
The sooner you start seeking debt relief, the sooner you’ll be finished. Plus, having a plan in place can greatly reduce your stress.
If your debt has become unmanageable, you’ll have to do something eventually. In the meantime, delaying action only prolongs the struggle. In that sense, ignoring the problem is what will cause it to drag out the longest.
A look into the world of debt relief seekers
We looked at a sample of data from Freedom Debt Relief of people seeking debt relief during June 2024. This data highlights the wide range of individuals turning to debt relief.
Credit utilization and debt relief
How are people using their credit before seeking help? Credit utilization measures how much of a credit line is being used. For example, if you have a credit line of $10,000 and your balance is $3,000, that is a credit utilization of 30%. High credit utilization often signals financial stress. We have looked at people who are seeking debt relief and their credit utilization. (Low credit utilization is 30% or less, medium is between 30% and 50%, high is between 50% and 100%, and very high is over 100%). In June 2024, people seeking debt relief had an average of 81% credit utilization. Here are some interesting numbers:
47% of the people fell into the high utilization bucket.
21% of people used 30% or less of their credit lines.
21% had very high credit utilization.
You don't have to have high credit utilization to look for a debt relief solution. There are a number of solutions for people, whether they have maxed out their credit cards or still have a significant part available.
Manage Your Finances Better
Understanding your debt situation is crucial. It could be high credit use, many tradelines, or a low FICO score. The right debt relief can help you manage your money. Begin your journey to financial stability by taking the first step.
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How long after debt relief does it take for your credit score to improve?
A study found that credit typically improves within a year of enrolling in a debt relief program. There's rapid improvement within the first two years. The improvement usually continues for at least six years after enrolling in the program.
Does debt relief hurt your credit?
When you begin a debt relief program, it’s normal for your credit to experience a temporary step back before an even bigger step forward. People needing debt relief don’t usually go in with high credit scores. Generally speaking, the lower your score, the less it will be hurt by any negative event. Debt settlement can help you recover a good credit score sooner than bankruptcy.
Can I use my credit card after debt settlement?
If you have an account that you’ve been able to keep up to date, you may be able to avoid having it closed. However, settling a debt on a credit card will likely involve closing that account. In time, debt settlement can result in credit improvement that puts you in a position to qualify for a credit account in the future.
