Debt relief options: match the route to your situation
Start with the cheapest help: your creditor, then a nonprofit credit counselor. The ads on this page, for a consolidation loan and for settlement, are paid placements for two of the paths compared below.
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Debt relief options: today's picks
Ads. These companies pay us, which can affect which offers appear and their order. This is not every option on the market. How we choose
You are far behind on unsecured debt and a repayment plan will not work
You can keep depositing for the whole program
Skip it if
You can still cover your minimum payments
Your biggest debts are secured, such as a mortgage or car loan
Start with the cheapest help: your creditor, then a nonprofit credit counselor. The ads on this page, for a consolidation loan and for settlement, are paid placements for two of the paths compared below.
By Checkngocash Editorial TeamUpdated 7 sources How we make money
The short version
Behind on payments, or about to be? Phone the creditor and book time with a nonprofit credit counselor before you pay a company for anything.
A consolidation loan helps only when its total cost is lower than your current path and you stop adding balances.
Settlement can shrink a balance, but it can also bring credit damage, lawsuits and a tax bill on the amount forgiven.
Five routes, side by side
What each route does and risks
Route
How it works
Effect on what you owe
Biggest risk
Ask the creditor
You request a smaller payment, waived fees or a lower rate.
Usually unchanged
The answer may be no
Credit counseling
A counselor reviews your budget and may set up a debt management plan with one payment to an agency.
Usually unchanged, with a smaller payment
Agency fees, and a plan that can run 48 months or more
Consolidation loan
A new loan pays off older debts.
Unchanged, now owed to one lender
A longer term can raise the total cost
Debt settlement
You save in an account while a company asks creditors to take less.
Possibly lower, if creditors agree
Credit damage, lawsuits, fees and tax
Bankruptcy
A court process that can erase debts or set up a repayment plan.
Many debts erased or repaid under a plan
Can stay on your report for 10 years
Where to begin, by situation
You are current on every bill
Draw up a budget, then see whether a lower rate would help. Price a balance transfer against a consolidation loan on total cost.
You have missed a payment or expect to
Contact the card company at once, because many will work with you during a financial emergency. After that, ask a nonprofit counselor about a budget and a debt management plan.
You see no way to repay
Meet a counselor and a bankruptcy attorney before you sign with a settlement company. Some attorneys give a free first consultation.
What each route can do to your credit
Consolidation loan. A full application usually brings a hard inquiry. After that, on-time payments are what count.
Settlement. Accounts left unpaid appear as negative items, which can make other credit harder to get. Late payments can remain on your report for 7 years.
Bankruptcy. The FTC treats it as generally a last option, since it can stay on your credit report for 10 years.
Newer negative items weigh more on a score than older ones. How credit scores work explains the mechanics.
Four signs to hang up or close the page
A fee is demanded before any of your debts has been settled
The company says your debt will disappear, or promises a fixed percentage off every account
You are told to stop speaking with your creditors
You are told to stop making even the minimum payments
Debt payoff calculatorEstimate how long your balances take to clear before you choose a route.Check your timeline
Questions people ask
Which option comes first?
For most people who are falling behind, a call to the creditor and a talk with a nonprofit counselor. Both cost little, and neither blocks you from another route later.
Will getting debt relief lower my credit score?
That depends on the route. A plan that relies on missed payments can do real damage, and late payments can stay on your report for years after the debt is resolved.
Do I pay tax on forgiven debt?
Generally yes. The IRS treats canceled debt as income, and the creditor may send a Form 1099-C. Bankruptcy and insolvency can qualify for exclusions, so check with a tax professional.
Is it possible to do this without paying anyone?
Yes. You can negotiate with a creditor or collector yourself, and a counselor can help you plan what to ask for.
Checkngocash is not a lender, debt relief company or credit counseling agency, and does not give legal or tax advice. Some ads on this page may be for debt settlement. Under the FTC Telemarketing Sales Rule, debt settlement companies that sell by phone cannot legally charge fees before they settle a debt. Settlement can damage your credit, and forgiven debt may be taxable.
