Do Debt Relief Programs Actually Work?

The average American has $90,460 in debt. If you are one of the millions of Americans struggling with high-interest debt, a debt relief plan with credible organizations such as Freedom Debt Relief can be a great option to help get your finances on track. However, debt relief isn’t a quick fix. It’s a long-term solution typically over several years to help get you out of debt. 

How Does Debt Relief Work?

Debt relief programs offer solutions designed to make your debt payment more affordable so that you can become debt-free over time. It may include a replacement loan that modifies your repayment term, lowers your interest rate, or an overall reduction in the total amount of debt. The variations depend on the solution you opt for. 

Most debt relief programs negotiate with your creditors on your behalf with the intention to get your creditor to accept an amount less than what you owe in exchange for settling the debt. There’s no one size fits all approach to debt relief.

 The common types of debt relief include:

  • Credit counseling
  • Debt consolidation
  • Debt management
  • Debt settlement

Credit Counseling

A credit counselor helps you with debt and credit management, money management, and your budget. The counselor reviews your finances, and together, you both devise a personalized plan to manage your financial challenges. Non-profit organizations typically offer these services.

Debt Consolidation

This technique combines your debts into one large single debt. A bank transfer of funds from a consolidation loan is used to clear the existing account balances; then, instead of making many payments every month, you only make one to the new debt account. 

However, there are qualifications for eligibility for debt consolidation. After applying for the new credit account, you then need to meet the lender’s eligibility conditions. If you have bad credit, you may not be legible for debt consolidation. 

If you have multiple credit card bills, you need to consider a balance transfer card. A balance transfer card is available only to those who qualify and offers an introductory balance transfer APR of zero percent. 

Debt Management

Creating a debt management plan is also a debt relief technique that helps you get out of debt in the long run. When you take up a debt management plan (DMP), you make a single monthly payment to the debt relief company. The company then pays off the debt based on the payment schedule they have devised with your creditors. 

Debt Settlement

A debt relief company negotiates with your creditors to settle your debt for less than the total amount owed. Debt settlement, however, has several drawbacks. Your creditors may not agree to a lesser settlement. 

If they do agree, your debt relief program may advise you to stop making debt payments and instead redirect that money to a different account dedicated to paying off your debts. This may result in late fees and accrued interest, increasing the amount you owe and negatively affecting your credit score. 

The debt amount may not change, but your debt relief company may be able to negotiate fee waivers or lower interest rates. One of the premier companies in this industry, Freedom Debt Relief, advises reviewing agreements carefully before accepting them.

What to Look Out for When Seeking Debt Relief Programs

After struggling to pay off your debts, debt relief may seem like an attractive option. However, while they make your debt repayment more manageable, it is important to be aware of the potential consequences.

Tax implications

Once your debt relief company negotiates with your creditors for a reduced debt burden, the amount you save is likely to be considered taxable income. This means that you may have to pay taxes on the amount you save. It is important to have a budget that accounts for this tax implication. 

Length of program

Debt relief is often viewed as a quick fix from the struggle of paying off debt. It isn’t. Debt relief requires consistent, timely monthly payments over a long period. Unfortunately, some people do not complete their debt relief programs. Before enrolling in such a program, ensure you can commit to it. In the event of default, you may have to repay your debt in full.

Interest rates

If you opt for debt consolidation, ensure you compare the interest rate you received before with the one you would receive on the new loan. If the interest rate isn’t lower, it won’t make much of a difference to take out a new loan. Lower monthly payments may also simply extend the period over which you will pay the loan. Extending the duration of payment means you will pay more interest. 

Carefully consider the terms of negotiation as they vary from one lender to another. For a balance transfer card, ensure that you can qualify for zero percent APR. To take full advantage of the zero percent APR, you need to commit to paying off your balance before the promotional period ends. You also need to know the variable APR on your balance if you don’t finish paying off the debt during the promotional period. 

If this APR is higher than what you are currently paying, it is important to know how much you may pay on your remaining balance and over what duration of time. This will help you know whether you will be saving money in the long run. 


Irrespective of which debt relief option you choose, it’s crucial to understand the fees associated with it. All debt relief companies typically charge for their services, usually a percentage of what you owe. For instance, if you have a $20,000 debt, the cost of debt relief maybe 20%. The fee, therefore, would cost $4,000. It is also important to consider other additional fees, such as origination fees.


Like any other industry, debt relief comes with the risk of scams. A debt relief company that demands payment upfront, promises to stop all debt collection lawsuits and calls, doesn’t send free information about their services, or promises to settle your debts for a fraction of what you owe is a red flag. When choosing a debt relief program, check with your state attorney general’s office and Better Business Bureau to ensure its legitimacy. 

Final Thoughts

So, do debt relief programs actually work? Each of the strategies listed here has its advantages and all can be successful when applied in earnest. Debt relief companies such as Freedom Debt Relief can help make your debt payment more manageable through waived fees, lower interest rates, or a reduced balance. Debt relief can help you avoid dire financial situations such as bankruptcy. However, despite its benefits, the potential risks shouldn’t be overlooked. 

Related Stories