Last Updated on Jan 11, 2020 by James W

Debt relief programs have helped hundreds of thousands of people resolve financial problems. Companies who negotiate with creditors on behalf of their clients offer this service. If your financial situation has you considering this option, here are some things you should know about debt relief.


Debt Relief Can:

  1. Lower your repayment amount
  2. Position you to avert bankruptcy
  3. Stop creditors’ collection calls


Negotiating on your behalf, debt relief firms offer creditors resolution of delinquencies if they’ll agree to accept a lower payment in full. Debt holders often go for this because they know bankruptcy filings mean they could get no money at all.


While filing for bankruptcy protection does have advantages, it also means your credit history will carry a scar for 10 years. In most cases, if you can avoid having this major blemish on your record, it’s a good idea to do so.


Better debt relief agencies are respected by collection agencies. Many will stop calling once they learn you’ve entered a program. If you tell them you’re working to pay off the debt and ask they stop calling, the law requires them to do so.


Debt Relief Cannot:

  1. Negotiate secured debt
  2. Improve your credit score
  3. Guarantee results


Mortgages, car loans, boat loans or any other kind of debt secured by an interest in any form of property is ineligible for inclusion in a debt relief program. This is because the lender can simply repossess the item if the terms of the loan agreement are broken.

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In most cases, your credit score will be lowered when you avail yourself of debt relief. However, if you’re in a situation in which you’re having trouble making the minimum payment on your debts, your credit score has already dropped. On the other hand, debt relief can shorten your route back to a strong score by eliminating unsecured debts and freeing up cash you can use to meet your secured obligations in a more timely fashion. While this will eventually bring your score back, it’s an indirect result of debt relief.

A lot of unscrupulous debt relief firms will offer guarantees. However, the reality is every situation is different. Even if a company has a strong track record with a given creditor, they could still reach an impasse in your case.  If you’re talking to someone and they say they can guarantee debt relief, they’re not operating above board. Even though it might make you feel good to hear a guarantee, offering one is unethical.

You’ll Encounter Fees, Taxes and Charlatans

Debt relief firms do require payment for their work. However, federal law makes it illegal for them to require payment of you until a settlement agreement is reached, approved by you and executed. Once a debt is settled, they can then send you a bill. Anybody asking for payment up front is operating in violation of the law.


The IRS can consider forgiven debt a form of income. Companies with which you reach settlement agreements can charge off the forgiven portion of your debt and declare it a loss. The IRS can then come after you for its slice of the “income” you “received” as a result of being freed of the burden of repaying the obligation.

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Among the things you should know about relief is the fact there will always be a certain subset of the human species given to profiting from other people’s problems. And yes, this industry has its share of these individuals. To be certain you’re working with a legitimate debt relief company, look for accreditation by organizations like the American Fair Credit Council and other watchdog agencies charged with monitoring the business.


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