Debt Relief: How It Works and Options to Consider
Debt relief changes the terms or amount you owe to help you pay it off. Learn about debt management, debt settlement and other debt relief options.
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Revolving credit card debt (meaning balances carried from month to month) has increased by more than 4% over the past year, according to NerdWallet’s most recent annual analysis of household debt. As of September 2025, households with this type of debt now owe $11,413, on average.
If debt reduction is on your list but feels overwhelming, debt relief can help reduce or restructure your debt so it’s easier to pay down.
The right option depends on your situation and may involve negotiating with your creditors, enrolling in a debt management plan or filing for bankruptcy. The effort to reduce your debt may feel huge, but most important is taking that first step.
What is debt relief?
"Debt relief" can mean different things, but generally the main goal of any debt relief option is to change the terms or amount of your debt so you can more easily pay it off.
Debt relief can involve:
- Negotiating with creditors to settle your debt for less than the full amount owed.
- Using a debt management plan to get a lower interest rate.
- Wiping out the debt or creating a repayment plan in bankruptcy.
- Working with a debt settlement or debt relief program.
When is debt relief a good idea?
Debt relief is a good idea if you’re struggling to make payments on your unsecured debt, which may include credit cards, medical bills, personal loans or payday loans.
A good rule of thumb is to consider debt relief if your debt currently accounts for 50% or more of your gross income, and it’ll take you five years or more to repay it.
Use the calculator below to determine your total debt load in comparison to your income.
Calculate your debt load here
5 debt relief options
DIY negotiations
You can skip a formal debt-relief program and handle debt on your own by appealing directly to your creditors.
Contact your creditors, explain why you fell behind and ask if they’ll lower your interest rate or waive fees while you catch up. Many banks or credit card companies also have formal hardship programs for customers going through tough times, like job loss or serious illness.
You may also consider DIY debt settlement, which is when you contact your creditors and negotiate an agreement where you pay less than you currently owe. This hurts your credit, though, so try and enroll in a hardship program first.
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Debt consolidation loans
If you’re mostly struggling with high-interest debt, you may want to consider consolidating. Debt consolidation is when you roll multiple debts into one, making the debt easier to pay off. A popular method is through a debt consolidation loan.
These loans are available even if you have fair or bad credit (any score between 300 and the low 600s). You use the funds from the loan to pay off all your debts at once, then repay the loan with fixed interest over a set term. Ideally, the consolidation loan has a lower rate than your current debts, so you save money on interest.
» COMPARE: Best debt consolidation loans for bad credit
Debt management plans
A debt management plan allows you to pay your unsecured debts — typically credit cards — in full, but at a reduced interest rate.
You make a single payment each month to a credit counseling agency, which then pays your creditors. Credit counselors and credit card companies have agreements in place to help debt management clients.
It’s important to pick an agency accredited by the National Foundation for Credit Counseling or the Financial Counseling Association of America.
» COMPARE: Top debt management plan companies
Bankruptcy
If you can’t repay your debt, bankruptcy is an option, but talk with a bankruptcy attorney first. Initial consultations are often free, and if you don’t qualify, you can move on to other options.
Chapter 7 bankruptcy: The most common form of bankruptcy is Chapter 7 liquidation, which erases most credit card debt, unsecured personal loans and medical debt. It takes about six months to complete.
Filing for Chapter 7 bankruptcy will hurt your credit and stay on your credit report for up to 10 years. But if your credit is already damaged, it may allow you to rebuild sooner than if you keep struggling.
» MORE: A guide to Chapter 7 bankruptcy
Chapter 13 bankruptcy: Not everyone with overwhelming debt qualifies for Chapter 7. If your income is above the median for your state and family size, or you have a home you want to save from foreclosure, you may need to file for Chapter 13 bankruptcy.
Chapter 13 is a three- or five-year court-approved repayment plan, based on your income and debts. If you are able to stick with the plan for its full term, any remaining unsecured debt is discharged, or canceled.
If you're able to keep up with payments (a majority of people are not), you will keep your property. A Chapter 13 bankruptcy stays on your credit report for seven years from the filing date.
» MORE: A guide to Chapter 13 bankruptcy
Debt settlement
Debt settlement is an option for those who face overwhelming debt but are unable or unwilling to file for bankruptcy.
Debt settlement companies will ask you to stop making debt payments when you enroll in a settlement plan and instead put the money in an escrow account. As the money accumulates in your account, and you fall further behind on payments, the debt settlement company asks your creditors if they’ll accept a smaller lump-sum offer.
Debt settlement is risky though, since you could end up with even more debt as interest and fees balloon. As the debts become more overdue, you may also face collections calls and legal action, which can lead to wage garnishment and property liens.
The Consumer Financial Protection Bureau , the National Consumer Law Center and the Federal Trade Commission caution consumers about debt settlement in the strongest possible terms. Some debt settlement firms may advertise themselves as debt consolidation companies, but consolidation is a much safer option than debt settlement.
Debt relief scams to watch out for
Debt relief can give you the new start you need, but be cautious — the debt relief industry includes scammers. Ask any debt settlement company these questions before entering into an agreement:
- Do you work with all of my creditors?
- What and how much are all the fees you charge?
- How long will it take to settle my debts?
- What are the tax implications of settled debts?
Avoid any debt relief programs that make you pay a fee before your debt is settled or guarantee a “too good to be true” price for paying off your debt. Debt relief programs also can’t promise to stop lawsuits or calls from debt collectors.
Debt relief options to avoid
Even if you’re feeling overwhelmed by debt, avoid these actions if possible:
- Don’t neglect a secured debt (like a car payment) in order to pay an unsecured one (like a hospital bill or credit card).
- Don't borrow against the equity in your home — it puts your home at risk.
- Avoid borrowing money from workplace retirement accounts. If you lose your job, the loans can become withdrawals and trigger a tax bill.
- Don’t make decisions based on which collectors are pressuring you the most.
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- 1. Consumer Financial Protection Bureau. What is a debt relief program and how do I know if I should use one?. Accessed Jan 16, 2026.
- 2. National Consumer Law Center. Why Debt Settlement is Bad for People in Debt. Accessed Jan 16, 2026.
- 3. Federal Trade Commission. How To Get Out of Debt. Accessed Jan 16, 2026.
