What is Debt Relief: Know Your Options

Navigating Financial Waters

How Does Debt Relief Work?

Have you felt swamped in debt without seeing a light at the end of the tunnel? If so, you’ve probably considered (or should consider) the possibility of debt relief. Put simply, debt relief involves reorganizing a borrower’s debts to make them easier or more feasible to pay. Creditors will typically consider the possibility of a debt relief agreement if the alternative is a total default by the borrower on their existing debt. In the case that debt relief is an option for you, consider reaching out to a debt relief company and reviewing the options that are offered to you.

Before deciding to pursue debt relief, though, make sure that the option is a feasible and necessary one. That is, debt relief typically comes with some serious costs both directly and indirectly; thus, it should be viewed as a last resort approach to what feels like an insurmountable amount of debt. So, how does debt relief work? Let’s find out.

What Options do Debt Relief Companies Offer?

Debt relief companies are for-profit businesses, and that should be recognized–while they are potentially helpful in relieving the debt that you have, they are ultimately doing so for profitability. With that being said, these companies will charge significant fees and percentages of outstanding debt to assist with the relief and communication with creditors.

So, what options can you pursue with a debt relief company? The three primary methodologies of debt relief that we should consider are debt consolidation, debt settlement and bankruptcy. Below will be the pros and cons for each, as well as a brief discussion of each one.

Debt Consolidation


  • Faster debt repayment.
  • Lower interest rates.
  • Fixed schedule.
  • Boost credit.


  • Will not solve the underlying debt issue.
  • Upfront fees.
  • Missing payments is detrimental.

Debt consolidation happens when an applicant takes the sum of their existing debt and applies for a consolidated loan that will then be used to pay back all of their existing creditors. By doing this, you will have to pay back a single creditor rather than multiple different loans – plus, the interest rate is typically lower for a consolidated loan.

Be careful, though, this will not resolve the underlying debt issue and will come at the cost of very high upfront fees. If you miss any of the scheduled repayments, you may also face additional late fees and ultimately dig your debt hole deeper.

Debt Settlement


  • Get relief from extreme debt.
  • Avoid bankruptcy.
  • No debt collection/lawsuit.


Debt settlement is often viewed as the next step above debt consolidation. A settlement should only be considered if you physically cannot keep up with the debt payments that you currently have, causing you to ultimately default or pursue a settlement.

By selecting debt settlement, you will get relief from the extreme debt, avoid bankruptcy or any legal troubles and only have to pay a portion of your existing debt. Unfortunately, though, debt settlement often comes with high fees and will result in a negative impact on your credit score.

Plus, whatever settlement you and the creditor agree to could result in negative tax implications (i.e. $50,000 debt owed and you pay $30,000 in settlement to a creditor; that $20,000 difference is considered taxable income).



  • A break from creditors.
  • Protects future wages.
  • Keep some assets.


  • Destroys your credit.
  • High fees.
  • Hard to borrow in the future.

Bankruptcy, as we all know, should be viewed as a last resort and should only be chosen in very extreme cases or circumstances. By choosing personal bankruptcy, you will get a break from creditors and protect your future wages from potentially being collected by any creditors.

On the other hand, though, bankruptcy does, of course, come with a cost. Not only does this option destroy your credit, but it charges very high fees and will make it extremely difficult to borrow in the future.

Do You Need Debt Relief?

We all face different levels of debt and abilities to pay that debt off; however, it should be noted that you do not need to hire a debt relief company for any of the above options. While some people choose to use a debt relief company for these options, they could all be pursued personally, which could result in quite a bit of financial savings if successful.

Remember, these options are different levels of extreme – it is in your best interest to attempt debt consolidation or debt settlement before moving to the last resort of bankruptcy.

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