The Ultimate Debt Relief Comparison Guide

Looking for professional help with your debt?

Being in debt is stressful enough. Finding ways to get out of debt shouldn’t factor into that stress. To make life a bit easier, we’ve created an in-depth comparison guide to help you make an informed decision about which debt relief option is right for you.

You can also work with a counselor to help you determine your next move. Don’t have time for the full guide? Skip to our verdict below.

Debt Relief Options and Features

Debt Management Program

What is it?

A structured plan that allows you to fully repay unsecured debt to your creditors, via one monthly payment, with reduced interest rates and waived fees.

What debt is included?

Unsecured debt (primarily credit cards).

How long will it take?

Typically three to five years (maximum of 60 months).

Cost

One monthly payment to cover each account on the program and a nominal fee to the counseling agency (the latter varies by state, $50 maximum).

What kind of credit will I need?

No credit requirement.

Involves third-party?

Yes, debt management programs are administered by nonprofit credit counseling agencies.

Includes payment plan?

Yes, the consumer submits one monthly payment, which the agency distributes to creditors.

Credit score impact

Your credit score may take a slight initial dip as you close accounts, but typically recovers relatively quickly as you make regular payments. In one study, our clients' credit scores increased by 106 points in three years.

Negative mark on credit report?

No, not if all payments are made on time. The agency administering the DMP does not report to the bureaus, period, but creditors may report late or missed payments. Some creditors may add a note to your credit report that you are paying through a third-party credit counseling organization, but this has no bearing on your credit score.

Education provided?

Yes, a debt management program is only administered after free credit counseling has been provided. While on a DMP, clients also have the option to work closely with the credit counseling agency, making use of their educational tools and articles, and regularly checking in with counselors for more help.

Will I pay back everything I owe?

Yes, under a DMP consumers pay everything they owe to their creditors. This helps rebuild good credit history and is also satisfying for those consumers who feel obligated to repay their debt in full.

Tax concerns

None (generally).

Additional legal concerns

Debt Settlement

What is it?

An arrangement in which creditors accept an amount less than the total balance owed and agree to forgive the remaining amount.

What debt is included?

Primarily unsecured.

How long will it take?

Varies, depending upon current account standing and other factors.

Cost

Monthly payment to the settlement company, a lump sum to your creditor, and a percentage of the total debt (usually 13-20%) or of the settled amount (usually up to 35%).

What kind of credit will I need?

No credit requirement per se, but you may be encouraged to intentionally default on the debt (and lower your credit score) to make creditors more likely to agree to settlement.

Involves third-party?

Usually. You can negotiate a settlement directly with creditors, but debt settlement usually involves working with an agency or an attorney who specializes in settlement.

Includes payment plan?

To creditors, no. In fact, payment will likely be discouraged. There may be a structured payment plan into an escrow account, though, which will provide the lump sum at settlement.

Credit score impact

You will likely experience a significant drop in your credit score, since debt settlement frequently requires you to skip payments and fall into severe default.

Negative mark on credit report?

Yes, negative information associated with missed payments and collections accounts will remain on your credit for seven years. In addition, your lender may add a mark of “settled” or “paid for less than full balance” to your report, which can further hurt your score.

Education provided?

No, typically debt settlement companies do not provide significant financial education as part of their service.

Will I pay back everything I owe?

No. If the settlement is successful, you will pay less than the total amount owed.

Tax concerns

Forgiven debt is taxable income. Example: if you owe $25,000 but settle for $10,000, then the $15,000 is taxable. If you are in a 15% tax bracket, you will owe an additional $2,250 in taxes.

Additional legal concerns

Debt Consolidation

What is it?

A catch-all term for methods of debt repayment that involves rolling multiple debts into a new line of credit. Common examples are a balance transfer, personal loan and a home equity line of credit (HELOC).

What debt is included?

Primarily unsecured.

How long will it take?

Varies greatly depending on type of debt.

Cost

One monthly payment toward the new account, which may be lower than the sum of all prior debts, depending on terms. Closing costs or fees (typically 3-5% of balance) may apply.

What kind of credit will I need?

Good to excellent credit is required.

Involves third-party?

Yes, but don’t be fooled by a settlement company posing as a consolidator. True consolidation is when you work with a lender to open a new line of credit to pay off your existing creditors in full.

Includes payment plan?

This includes a traditional payment plan (likely once a month).

Credit score impact

Your credit score may be strained by consolidation if you close multiple accounts. Also, debt consolidation often involves loading up the new account, which can push your utilization rate too high, hurting your score.

Negative mark on credit report?

No, not if all payments are made on time.

Education provided?

No, debt consolidation is transactional in nature. Very little, if any, education will be provided other than a brief explanation of the terms of your new account.

Will I pay back everything I owe?

Yes, if debt consolidation is completed successfully then the debt will be paid in full.

Tax concerns

None (generally) in unsecured consolidation. Loan interest payments in a HELOC are tax deductible.

Additional legal concerns

Chapter 7 Bankruptcy

What is it?

A proceeding in which a consumer’s nonexempt assets are managed by a trustee and liquidated to the extent necessary to repay creditors for outstanding debt. If there are no assets, debts are erased with no repayment.

What debt is included?

Secured and unsecured.

How long will it take?

Typically four to six months.

Cost

Court costs are $335, and average attorney costs are between $1,000 and $2,000, though you may pay more. You also may lose liquidated assets, such as home furnishings, your vehicle, and other property. This will vary on a case-by-case basis.

What kind of credit will I need?

No credit requirement.

Involves third-party?

Yes, bankruptcy involves working with attorneys and the US Courts.

Includes payment plan?

No.

Credit score impact

You will likely experience a significant drop in your credit score. The extent to which your score is affected will be determined by the number of accounts in bankruptcy, your credit score before bankruptcy, and other factors. One piece of good news: your debt-to-income ratio will improve immediately when your assets are liquidated. Also, you can pursue new credit once your discharge is complete.

Negative mark on credit report?

Yes, Chapter 7 bankruptcy remains on your credit report for 10 years.

Education provided?

Yes, US Bankruptcy Code requires that you receive credit counseling before filing for bankruptcy, and a money management education course before completing your filing.

Will I pay back everything I owe?

Typically, no. The trustee will liquidate assets to cover as close to the full amount as possible, and the rest will be discharged.

Tax concerns

Debt discharged in bankruptcy is not taxable.

Additional legal concerns

Chapter 13 Bankruptcy

What is it?

A proceeding in which consumers agree to a payment plan to their creditors that involves a large percentage (sometimes all) of their disposable income and is administered on their behalf by a trustee.

What debt is included?

Secured and unsecured.

How long will it take?

Typically three to five years.

Cost

Court costs are $310, and average attorney costs are around $2,500, though you may pay more. You will also pay a significant amount of your disposable monthly income for the duration of the program and may lose liquidated assets.

What kind of credit will I need?

No credit requirement.

Involves third-party?

Yes, bankruptcy involves working with attorneys and the US Courts.

Includes payment plan?

Yes, this involves a biweekly or monthly payment to the trustee, who then distributes the payment to creditors.

Credit score impact

Chapter 13 and Chapter 7 impact credit scores in the same way. However, in a Chapter 13, consumers won't recover their debt-to-income ratio as quickly, and won't have access to new credit until their payment plan is completed (unless they receive consent from the trustee). The good news, though, is that some lenders may look more favorably upon a Chapter 13 bankruptcy since it develops money management skills and shows a good faith effort to repay.

Negative mark on credit report?

Yes, Chapter 13 bankruptcy remains on your credit report for 7 years.

Education provided?

Yes, US Bankruptcy Code requires that you receive credit counseling before filing for bankruptcy, and a money management education course before completing your filing.

Will I pay back everything I owe?

Typically, no. Your debt repayment is ranked across three categories: priority, secured and unsecured (in that order). You will typically pay all priority claims (taxes and child support, for example) and as much of the other debts as is feasible.

Tax concerns

Debt discharged in bankruptcy is not taxable.

Additional legal concerns

The Verdict

Debt Management Program

Right for you if...

You're primarily struggling with credit card debt and have fair or poor credit, but you want to retain all assets and minimize negative impact to your credit report and score.

Pros

  • Improved credit score (in most cases)
  • Pay everything you owe
  • One monthly payment
  • Lower interest rates
  • Counseling and education provided
  • Structured payment plan

Cons

  • Length of time
  • Fees

Debt Settlement

Right for you if...

This option is almost never recommended and poses serious consumer risks. Only pursue this if you are already in serious default (collections) and cannot qualify for bankruptcy.

Pros

  • Pay less than you owe (when it works)

Cons

  • Credit score impact
  • Fees
  • Tax concerns
  • Legal concerns
  • Doesn’t address budget/behavior
  • On credit report for 7 years

Debt Consolidation

Right for you if...

You're struggling to meet various financial obligations, but you still have good to excellent credit, and a combination of a lower monthly payment and interest rate will allow you to make ends meet more comfortably.

Pros

  • Lower interest rates
  • Pay everything you owe
  • One monthly payment

Cons

  • Doesn’t address budget/behavior
  • Good credit score required

Chapter 7 Bankruptcy

Right for you if...

You cannot meet your monthly financial obligations, have fair or poor credit, and cannot feasibly repay everything you owe after adjustments to your budget and credit terms. You also pass the means test, meaning you have little to no disposable income.

Pros

  • Length of time
  • Counseling and education provided

Cons

  • Credit score impact
  • On credit report for 10 years
  • Fees
  • Potential to lose assets

Chapter 13 Bankruptcy

Right for you if...

You cannot meet your monthly financial obligations, have fair or poor credit, and cannot feasibly repay everything you owe after adjustments to your budget and credit terms. You also do not pass the means test.

Pros

  • Counseling and education provided
  • Structured payment plan

Cons

  • Credit score impact
  • On credit report for 7 years
  • Potential to lose assets
  • Fees
  • Length of time

What’s Next?

As you can see, not all debt relief options are created equal. It’s important to understand your financial situation and pick the option that’s the best fit for you. Remember that you can pursue any of these options after taking advantage of a free credit counseling session. Our counselors will review your credit standing, budget and goals, and work with you to develop a plan that’s in your best interest.