Debt Relief Programs: How They Work and What to Look For

- Debt relief could help you get rid of debt that you can’t afford to repay.
- Debt relief means negotiating settlements with creditors and asking them to accept less than the total owed as payment in full.
- Creditors are not obligated to settle debt and results cannot be guaranteed.
Debt relief programs are designed to help consumers struggling with more debt than they can afford. In its simplest form, a debt relief program means that your creditors agree to accept less than what you owe as payment in full.
How Does a Debt Relief Program Work?
Debt relief typically works this way: you enroll your unsecured accounts into a debt relief program with a debt settlement company. You typically choose to stop making payments to your creditors. You and your debt consultant come up with an amount that you can afford, and you put that money into a debt settlement savings account each month. Debt relief programs could help you get rid of debt faster than making minimum payments.
Negotiations begin with creditors when you have saved enough. You continue to make your monthly payments into your dedicated account as your debts are settled one by one. You pay no fees to a debt settlement company until it settles a debt for you, you authorize that settlement, and the first payment has been made.
You could speed up the settlement process by cutting expenses or selling things you don’t need to reach your savings goal faster.
Why would creditors agree to settle my debt?
“Why would my creditors agree to settle my debt?” you might well ask. Creditors are not in business to lose money. They only agree to a debt relief program if they believe that other options will cost them more and that you can’t afford to pay what you owe. Creditors are less likely to settle if you’ve made your payments and have a good credit score. They assume that you’d like to protect that score and that you can afford to do so.
However, if you start missing payments, it becomes obvious that you’re having trouble paying what you owe. Creditors begin to fear that you might even walk away or file bankruptcy and pay nothing (or practically nothing). If a debt is older, your state’s statute of limitations for debt could kick in, which is the legal time limit on suing you for the debt. Once a creditor concludes that something is better than nothing, you have a good chance of settling your account.
How long does a debt relief program take?
Debt relief generally takes between two and four years, depending on the amount of enrolled debt, how fast you can save for debt settlement, and how much your creditors are willing to accept. A debt consultant could help you estimate your timeframe. In many cases, the first account can be settled in four to six months. Over time, debt relief programs could help you get rid of debt that you can’t afford.
What kinds of debt can I settle with a debt relief program?
Debt relief is not for loans secured by collateral, like mortgages or auto financing. If you stop paying secured creditors, they can foreclose on your home or repossess your car. However, a debt relief program can work with unsecured creditors. Here are the most common types of unsecured loans that you might be able to settle with debt relief:
Credit card debt
Unsecured personal loans
Medical bills
Private (not government-guaranteed) student loans
Peer-to-peer (P2P) loans
When attempting debt settlement, you could be dealing with the original creditor, a debt buyer, or a collection agency.
What’s the difference between an original creditor, a debt buyer, and a collection agency?
Original creditors are the people or companies you borrow from – like banks that make personal loans or credit card issuers. Protections guaranteed by the Fair Debt Collection Practices Act (FDCPA) do not apply to original creditors.
So, while debt collectors have to leave you alone once you ask them to stop contacting you, original creditors may be able to keep calling. Your state may or may not have laws in place to protect you from aggressive collection efforts from your creditors.
Collection agencies make money by collecting debt for others. Original creditors may turn accounts over to collections and pay the agency a fee for collecting, or they might sell the debt at a discount to the agency. Debt collectors are covered by the FDCPA and must stop contacting you if you ask them to.
Debt buyers purchase the right to collect a debt from original creditors or collection agencies. Debt buyers own the debt and have the same legal rights as original creditors unless their main business is debt collection. In that case, they fall under the FDCPA, just like collection agencies.
Why does it matter who owns your debt? It can impact the amount of contact you get when you’re in a debt relief program. It may also determine how willing the debt holder is to settle and how much it might accept. A debt buyer who paid pennies on the dollar for your old account may be willing to settle readily for a modest amount. But your credit card company will probably pursue you for the entire balance, especially if you recently charged expensive purchases.
Is a debt relief program a good idea?
Debt relief programs aren’t for everyone. They are a solution for serious debt problems, not a get-out-of-jail-free card for people who just don’t want to pay what they owe. Consider both the pros and cons of debt relief before committing to a program.
A debt relief program may help you get rid of debt if you can’t afford the minimum payments on your debt or if your debt is creating hardship for your family. It could be a better solution than bankruptcy if you don’t want a public filing, if you have a previous bankruptcy, or if you don’t want a bankruptcy court taking total control of your finances.
How does a debt relief program affect my credit?
Most people who enter a debt relief program voluntarily stop making payments to their creditors. There are a couple of reasons for this.
First, you need money to offer your creditors when it comes time to work out a settlement agreement. For many people, it’s hard to save up money while keeping up with debt payments.
Second, stopping payments sends a distress signal to your creditors. It lets them know that you’re experiencing financial hardship. This could make them more willing to negotiate.
Every missed payment will lower your credit score. Payments that are more than 30 days late, missed payments, and collection accounts are all but guaranteed to have a serious negative impact on your credit standing.
If you currently have a high credit score, this can be devastating. Those who have more to lose will lose more. But if you’re having trouble paying your bills and already missing payments, the damage is less obvious.
What happens to your credit score after you graduate from a debt relief program?
Negative information, like missed payments or accounts in collection, typically remains on your credit report for seven years. But the impact of negative history on your credit score usually fades before that, especially if you build positive credit history during that time.
Your life should be more affordable after getting rid of debt. It’s harder to maintain a good credit standing when you’re struggling financially. Choosing to let your credit score take a hit could make sense if it lets you get on your feet.
With a bit of luck and sound financial management going forward, you should be able to pay your bills on time and continue to improve your credit profile.
Can I negotiate with creditors myself?
There is no reason that you cannot attempt debt settlement yourself. Here are the steps you’d take:
List the amounts you owe to each creditor and the minimum monthly payment. If collection agencies are after you, they’re probably demanding the entire balance owed.
Go through your budget—your after-tax monthly income and every necessary cost you have. Plan to get rid of expenses you don’t need to live on when you start your debt settlement plan.
Subtract your total required expenses from your after-tax monthly income. That’s how much you can afford to use for debt settlement.
See how much money you can offer your creditors to settle your debts. Consider selling things you don’t need, borrowing against your 401(k) at work, or tapping your savings. That can start your debt settlement fund.
Now comes the hard part. Stop paying your creditors. This is usually necessary because few creditors will settle an account when you make payments. Instead, put those amounts into your debt settlement fund.
Expect phone calls, letters, voicemails, collection calls at work, calls to your cell phone, even texts and private messages through social media.
Once you’ve saved enough to offer a creditor, contact it and negotiate an amount to clear your balance. Supply proof of your financial hardship to convince your creditor that you cannot afford to pay more. Do not send money until you have a signed, written agreement.
Work through your creditors one by one until you clear your balances.
Understand that your creditors are not obligated to settle with you and may even take you to court. If you lose, you’ll owe your balance and probably collection fees and court costs, and your creditor may be able to garnish your paycheck.
How much could I save with a debt relief program?
Your creditors are under no obligation to settle with you. No reputable debt relief company will guarantee that it can wipe out your debts or clear your balances for “pennies on the dollar.” Your experience will likely depend on the age of the debt, the type of creditor, and how well you present evidence of financial hardship.
If you can show that you’re insolvent and a good candidate for bankruptcy, you’re more likely to succeed at debt settlement than if you earn a high income, spend on luxuries, and can’t prove hardship.
Statistics can help you visualize the potential for savings through debt settlement, but specific results cannot be guaranteed or predicted. A recent study by Will S. Dobbie at the Harvard Kennedy School entitled “Financial Outcomes for Debt Settlement Programs: Estimates for 2011-2020” found that, on average, consumers settled balances of $17,032 for $8,365, paying fees of $3,325. That’s a reduction of 51% before fees and 31% savings after fees.
Insights into debt relief demographics
We looked at a sample of data from Freedom Debt Relief of people seeking debt relief during May 2025. The data provides insights about key characteristics of debt relief seekers.
Age distribution of debt relief seekers
Debt affects people of all ages, but some age groups are more likely to seek help than others. In May 2025, the average age of people seeking debt relief was 53. The data showed that 24% were over 65, and 14% were between 26-35. Financial hardships can affect anyone, no matter their age, and you can never be too young or too old to seek help.
Home-secured debt – average debt by selected states
According to the 2023 Federal Reserve Survey of Consumer Finances (SCF) (using 2022 data) the average home-secured debt for those with a balance was $212,498. The percentage of families with mortgage debt was 42%.
In May 2025, 25% of the debt relief seekers had a mortgage. The average mortgage debt was $236504, and the average monthly payment was $1882.
Here is a quick look at the top five states by average mortgage balance.
State | % with a mortgage balance | Average mortgage balance | Average monthly payment | |
---|---|---|---|---|
California | 20 | $391,113 | $2,710 | |
District of Columbia | 17 | $339,911 | $2,330 | |
Utah | 31 | $316,936 | $2,094 | |
Nevada | 25 | $306,258 | $2,082 | |
Massachusetts | 28 | $297,524 | $2,290 |
The statistics are based on all debt relief seekers with a mortgage loan balance over $0.
Housing is an important part of a household's expenses. Remember to consider all your debts when looking for a way to get debt relief.
Support for a Brighter Future
No matter your age, FICO score, or debt level, seeking debt relief can provide the support you need. Take control of your financial future by taking the first step today.
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Author Information

Written by
Gina Freeman (Pogol)
Gina Freeman (Gina Pogol) enjoys breaking down complicated subjects and helping consumers feel comfortable making financial decisions. An acknowledged expert in mortgage and personal finance since 2008, Gina's experience include mortgage lending and underwriting, tax accounting, and credit bureau systems consulting. You can find her articles on MSN Money, Fox Business, Forbes.com, The Motley Fool and other respected sites.
Reviewed by
Robin Hartill, CFP
Robin is a writer and reviewer for Freedom Debt Relief. She is a CERTIFIED FINANCIAL PLANNER™ and a longtime personal finance writer and editor.
How much taxes would I owe for forgiven debt?
For many consumers, there could be tax consequences of debt settlement. If your debt relief is taxable, your taxes will depend on the tax bracket that your income places you in. Federal income taxes are waived if you’re insolvent when you settle the debt (you owe more than you own). IRS Publication 4681 explains more. It’s a good idea to talk to a qualified tax professional about your specific situation.
Does enrolling in a debt relief program stop collection calls?
No, a debt relief program can’t stop collection calls. In fact, if you stop making your debt payments, you should expect collection calls to begin or increase. You could even be sued for the debt.
A reputable debt relief company will coach you on how to handle the calls and support you throughout the process. Some creditors might be willing to postpone legal action once they know you’re in a debt relief program.
Once you or your debt settlement company reaches a settlement with your creditor, that debt will be satisfied and you shouldn’t be contacted about it again.
Do creditors settle with consumers who try DIY debt settlement?
Some do and some don’t. Every creditor has its own policy. Some do not settle debt, period. Others have relationships with debt settlement providers and are accustomed to working with them. The bottom line is that DIY debt settlement is possible and there is no reason not to attempt it. You can always hire a debt settlement company if you want professional assistance.

Debt Relief
