Guide to Debt Relief and Debt Management Programs: The Pros and Cons of Each Type

Editor’s Note: This post was originally published in December 2020.

Key Takeaways

• Weigh the cost, risks, and potential credit impact before choosing a debt help program.
• For-profit debt settlement, also known as “debt relief,” can put you at risk of lawsuits.
• NFCC-certified credit counseling agencies are nonprofits that are here to help.

Are you looking for help paying off debt? For most people in this position, the number of options you can choose from is overwhelming. There are many companies that offer some form of “debt relief” or debt help, but figuring out who you can trust is a challenge.

That’s why the NFCC put together this handy guide. Below, we’ll walk you through the costs, credit score impact, and other important considerations for each method. You can use this guide to understand the general focus and the pros and cons of each type of professional debt help.

For-profit debt settlement

For-profit debt settlement, often referred to as “debt relief,” involves paying a company to negotiate settlements with your creditors and debt collectors. With this option, you send monthly payments for as long as 48 months or more, and then the debt settlement company uses some of the funds to negotiate settlement offers for less than what you owe.

Hiring a for-profit company to settle your debt is perhaps the riskiest approach to debt relief. There’s no guarantee your creditors will negotiate with them. In fact, your creditors will likely charge you late fees, increase your interest rates and report your missed payments to the credit bureaus. They may even respond by filing lawsuits against you to collect the debt. 

Pros of for-profit debt settlement

• Potential to pay less than what you owe

Cons of debt settlement

• No guarantee your debt will be forgiven
• Your debt can increase due to late fees from creditors
• Interest rates on your debt can increase
• Monthly fees can be up to $40 or more 
• Can take 4 years or more before negotiations begin
• You usually pay setup fees and a flat fee of 15%-25% of the total amount you owe
• Forgiven debt can be considered taxable income
• Missed payments on debt will appear on your credit reports for 7 years
• Your credit scores can drop by 100 points or more
• Creditors may sue you for the debt

Debt consolidation

Debt consolidation is the process of rolling multiple debts into one new debt account. Similar to refinancing, it involves taking out a loan or credit card in order to pay off old debts. Ideally, consolidation will get you better terms, such as lower interest rates or more affordable payments.

You can pursue debt consolidation by opening a new credit card and using it to pay off old debt, which is also known as a balance transfer. If you qualify for a “balance transfer credit card,” the card might have a 0% APR promotional period during which you pay no interest on the amount you transfer. However, you’ll likely pay a flat fee of either 3% or 5% of the transferred debt.

Alternatively, you can take out a personal loan and use it to pay off your old debt. This is usually the best option, since the average personal loan has a much lower interest rate than the average credit card (11.86% versus 20.94% as of August 2026). 

Pros of debt consolidation

• Potential to reduce your interest charges
• Lower interest rates can allow you to pay debt off faster
• Potential to reduce your monthly payments
• Consolidate multiple accounts into one
• Could improve your credit scores if it accelerates debt payoff (and if you keep your old credit cards open after paying them off)

Cons of debt consolidation

• You’ll have trouble qualifying for a loan or credit card if you have low credit scores
• You may have to pay a balance transfer fee or a loan origination fee
• Balance transfer credit cards have complex rules and fee structures
• Your loan amount or credit card limit might not be enough to pay off all your debt
• Might encourage you to delay debt payoff or accrue more debt

Bankruptcy

Bankruptcy is a legal process that can allow you to have some or all of your debt discharged (forgiven). There are two types of bankruptcy: Chapter 7 and Chapter 13. Chapter 7 bankruptcy is a quicker process and may involve more debt being discharged. However, you’ll have to pass a “means” test to qualify. With Chapter 13, you have to complete a three to five year repayment plan, and then the remainder of your debt will be forgiven after you complete the plan.

Pros

• Can be the only feasible way for some people to get out of debt
• Some of your debt may be forgiven
• Chapter 13 payments must be affordable based on your income
• Filers can benefit from the required bankruptcy counseling

Cons

• Major negative impact on your credit scores
• Chapter 7 remains on credit reports for 10 years and Chapter 13 remains for 7 years
• You’ll have difficulty being approved for loans or credit cards for several years
• You may have to forfeit some assets
• Chapter 13 bankruptcy takes 3-5 years to complete
• Filing involves court costs and attorney fees

Debt management plan (DMP)

A debt management plan (DMP) is a repayment program for your unsecured debt (mainly, credit cards). These programs are typically managed by nonprofit credit counseling organizations, some of which have NFCC-certified credit counselors.

If you qualify for and enroll in a DMP, you’ll send a monthly payment to the credit counseling organization for anywhere from 36 to 60 months. The agency will distribute the payment to creditors on your behalf. Typically, your creditors will offer you lower interest rates and waive fees while you’re on a DMP.

Pros of debt management plans 

• Sticking with the plan can allow you to pay off your credit card debt
• Consolidate multiple payments into one
• Get free credit counseling (if you go through an NFCC-certified agency)
• Possible reduction in interest rates to 10% or less
• Possible forgiveness of creditors’ late fees
• Income-based waivers are available for DMP fees
• Past missed payments may be removed from your credit reports
• Helps stop collection efforts from creditors
• Long-term impact to credit scores is positive

Cons of debt management plans

• Requires a 3-5 year commitment
• You’ll likely have to pay a setup fee and a monthly fee 
• Loans typically can’t be included in your plan
• You’ll have to close some or of all of your credit card accounts
• Initial impact to credit scores can be negative

Which debt relief method is best for you?

As you can see, when you’re looking for help with debt, the options can easily get confusing. It’s impossible to say which method is best for everyone, but the best method for you is one that meets all of these requirements:

• The relief is provided by a legitimate nonprofit agency
• The payments are affordable for your budget
• The fees are minimal and they’re openly disclosed
• You can get the rules and terms in writing, and you understand what you’re agreeing to
• You’ll be in less debt if you follow through with the plan

Out of all the methods we covered, for-profit debt settlement is the least likely to meet these requirements. To choose from the other options, we recommend discussing them with one of our NFCC-certified credit counselors to see which is the best fit. While each relief method has its pros and cons, the good news is that there are several options that can help you become debt free.