Link copied to your clipboard

6 Debt relief options: Learn which is best for you

Does it feel like your debt prevents you from living your ideal life or achieving your dreams? Fortunately, you can take charge of the situation. We’ll discuss six debt relief options to help you decide which one is best for you.

Laura Gariepy
June 5, 2023

You might also like:
A picture of a yellow and blue box.
A picture of a yellow and blue box.

Get up to $500k from your home equity.

  • No monthly payments
  • No income requirements
Prequalify now
Share on social:

Do you struggle to keep up with your monthly debt payments? Does it feel like your debt prevents you from living your ideal life or achieving your dreams? If either one rings true for you, you’re not alone.

According to the credit bureau Experian, the average consumer debt balance climbed to $101,915 by the third quarter of 2022, up nearly 6% from the previous year. While most consumers are keeping up with their bills, delinquency rates are on the rise, with 1.67% of accounts sitting at 30-59 days past due.

Fortunately, you can take charge of the situation and get out of debt. We’ll discuss six debt relief options to help you decide which one is best for you.

Debt consolidation

Debt consolidation is the process of using a new loan to pay off your existing debts. Generally, the new loan has a lower interest rate, which helps you save money and potentially gets you out of debt faster since more of your payment goes toward the principal balance. Debt consolidation also reduces the number of bills you have to pay each month since the new debt replaces multiple older debts.

Two popular debt consolidation tools include a personal loan or a balance transfer credit card. A personal loan typically comes with a longer repayment term, giving you more wiggle room in your budget. Loan amounts also tend to be larger.

On the other hand, a balance transfer credit card often has a 0% promotional APR, which means you could save even more money in interest. However, if you don’t pay off your new credit card by the time the promotional period ends (usually in less than two years), you’ll have to pay the regular interest rate (could be 20% or higher) on the remaining balance.

Both of these debt consolidation options come with fees, so you’ll have to factor those costs into your decision. For example, credit card companies will generally charge a 3%-5% balance transfer fee on the amount of debt you move. Personal loan origination fees can be up to 10% of the loan amount.

Pros of debt consolidation:

  • Reduced interest
  • Potentially shorter timeline to become debt-free
  • Simplified bill pay

Cons of debt consolidation:

  • Potentially expensive fees
  • Excellent credit is required to qualify for the best rates
  • Credit cards with a zero balance could tempt you to spend

Is debt consolidation right for you?

Debt consolidation might be right for you if you have good credit and the discipline to avoid using your credit cards once they’re paid off. However, if you have fair or poor credit, you may not get approved for a debt consolidation loan, or you may get approved for a loan with a high interest rate. In addition, if you have a spending problem, you may rack up more debt on your credit cards, putting you even further behind.

Debt settlement

Debt settlement is the process of paying off your debts for less than what you owe. Typically, you’ll hire a for-profit company or a debt attorney to negotiate deals, or settlements, with your creditors. If negotiations are successful, you could save a significant amount of money (up to 50% of your balance) and get out of debt faster.

Here’s how it works: You’ll pay the company or attorney each month, and they’ll put those funds in an account you own to use for debt settlements with your creditors. They may ask you to stop paying your creditors directly. 

If that’s the case, your accounts will become more delinquent. As a result, your credit score could drop and your creditors could take legal action against you. The company or the attorney may be able to help you fight the legal action, but the service may not be included in the base fee. 

Generally, debt settlement companies or attorneys take a percentage of the savings they negotiate for you. However, they may also charge other fees, so it’s important to understand the price structure before making a commitment.

The debt settlement process could take several years to complete, depending on the total amount you owe. Unfortunately, there’s no guarantee that the company or your attorney will successfully settle your debt. You may end up with bad credit and more debt than you started with (due to the fees and interest accruing on your accounts).

In addition, debt settlement could have tax implications. The government considers forgiven debt as taxable income. That means you may owe a lot of money at tax time if you settled your debts for much less than you owed.

Finally, there are a lot of scam companies out there. Therefore, it’s wise to thoroughly research any debt settlement professional you may want to hire.

Pros of debt settlement:

  • Could settle your debt for significantly less than you owe
  • Potentially shorter timeline to become debt-free
  • Professional negotiator working for you

Cons of debt settlement:

  • Possible credit damage and legal action
  • Potentially expensive fees and tax bill
  • No guarantee of success

Is debt settlement right for you?

Debt settlement may be right for you if you’re already behind on your bills and want to avoid declaring bankruptcy. Creditors are more likely to negotiate a reduced balance if they think that’s the only way they can collect on the debt. In addition, if you’ve missed payments, your credit is likely damaged, so it won’t hurt as much for your score to take a hit during the debt settlement process.

No income? No problem. Get a home equity solution that works for more people.

Prequalify in 60 seconds with no need for perfect credit.

Show me my offer
Get home equity, homeownership, and financial wellness tips delivered to your inbox.

Thank you for subscribing!

Check your email for a confirmation. We’ll be in touch soon!
Oops! Something went wrong while submitting the form.


Bankruptcy is the process of discharging your debt in court. Once your debt gets discharged, you’re no longer responsible for repaying it. You can file two main types of bankruptcy: Chapter 7 and Chapter 13.

Chapter 7 bankruptcy involves liquidating (selling) your assets, such as vehicles or real estate, to repay your creditors. Any remaining debt generally gets discharged. While there’s a chance you could lose your home during the proceedings, you’ll likely be able to keep it – especially if you’ve built limited equity and are current on the mortgage.

However, you must earn less than your state’s median income or pass a means test to qualify for this form of bankruptcy. The means test looks at how much you owe relative to your income to see if you can repay your creditors. 

If you qualify, your bankruptcy could be completed – and your debt discharged – in less than six months. If you don’t qualify, you may be able to file for Chapter 13 bankruptcy.

Chapter 13 bankruptcy involves developing a three to five-year debt repayment plan. You'll make payments for three years if you earn less than your state’s median income. You'll pay for five years if you earn more than your state’s median income. After you complete your plan, your remaining debt will get discharged.

The only Chapter 13 qualification you must meet is having less than $2.75 million in total debt (secured and unsecured). Secured debt is debt backed by an asset (known as collateral) the lender can repossess if you don’t pay as agreed. Examples include a mortgage or an auto loan. On the other hand, unsecured debt, like a credit card or personal loan, is not backed by an asset.

Neither type of bankruptcy will discharge tax debt or child support owed. It’s also unlikely you’ll get rid of your student loan debt as it rarely gets discharged in bankruptcy.

Both types of bankruptcy can be costly to file. You’ll have to pay several hundred dollars in court fees. In addition, legal representation may cost several thousand dollars – especially if you have a complicated case. Chapter 13 tends to be more expensive to file because there’s more work involved.

Pro Tip: While hiring an attorney for your bankruptcy case may seem pricey, their services might increase your odds of getting your debt discharged because they have a lot of related experience and insight. 

Both types of bankruptcy will also damage your credit score. The effects of a Chapter 7 bankruptcy will linger on your credit report for ten years, while Chapter 13 will impact your credit for seven years.

Pros of bankruptcy:

  • Chapter 7 gives you a clean slate
  • Chapter 13 helps you repay creditors while keeping assets
  • Both put an end to the debt cycle

Cons of bankruptcy:

Is bankruptcy right for you?

Bankruptcy might be the right debt relief help for you if you’re significantly behind on your bills and the other debt relief options don’t seem feasible, but it's best to explore all alternative options before filing. Chapter 7 bankruptcy could be a good fit if you earn a low income and don’t have many assets. Chapter 13 bankruptcy may work if you can make monthly payments and have assets you want to protect.

Credit counseling

Credit counseling generally involves working with a non-profit agency like the National Foundation for Credit Counseling (NFCC). The agency teaches you money and debt management skills. Your counselor may also put you on a debt management plan.

Under a debt management plan, you’ll typically repay the entire balance you owe to each creditor. However, your counselor may be able to negotiate a lower interest rate, a longer repayment period, or waived fees. This debt relief plan can take up to five years to complete, depending on how much debt you have.

You’ll remit a single payment to the credit counseling agency each month. Then, your counselor will pay your creditors on your behalf. Your credit won’t suffer as it might with a debt settlement strategy because your creditors will still receive regular payments.

A debt management plan only focuses on unsecured debts like credit cards and personal loans. You can’t enroll your secured debts or student loans into the program. You may be required to close your existing credit accounts and pledge not to open new ones during the plan.

While most credit counseling agencies are non-profit, they still need to generate revenue to cover expenses. Therefore, you can expect to pay a reasonable fee for the service you receive.

Pros of credit counseling:

  • Doesn’t damage your credit
  • Potentially lower interest, waived fees, and longer repayment terms
  • Professional financial advice included

Cons of credit counseling:

  • Debt management plans take a long time to complete
  • You’ll repay the full amount owed
  • Potentially limited (or no) access to credit

Is credit counseling right for you?

Credit counseling might be among the best options for debt relief if you can afford to make the monthly payments and want financial guidance. However, you may want to consider filing bankruptcy if you can’t pay consistently.


DIY debt relief options

There are several debt reduction options you can pursue on your own. First, you need to know everything about your debt. Create a list of every debt you have that includes the:

  • Creditor name
  • Type of debt (credit card, mortgage, student loan, etc.)
  • Current balance
  • Minimum monthly payment
  • Interest rate
  • Due date
  • Account status (current, one month behind, two months behind, etc.)

Next, take a look at your spending. What non-essential purchases (dining out, online shopping, monthly subscriptions, etc.) can you eliminate or reduce? How can you save on essential expenses (housing, transportation, groceries, etc.)? Perhaps you can drive less to save money on gas, buy generic goods at the supermarket, or look for a roommate. 

Pro Tip: If you want to pay off your debt faster, consider increasing your income. You could work overtime, find a higher-paying job, or start a side hustle.

Then, take all of the money you saved and put it towards your debt. You can use one of two popular debt payoff strategies: the debt snowball or the debt avalanche.

The debt snowball strategy involves repaying your debt from smallest to largest. You’ll make the minimum payment on all your accounts except for your target debt. You’ll throw every spare nickel you have at that debt until you reach a $0 balance. 

Then, you’ll repeat the process until all your debt is gone. This method builds momentum, which helps you feel hopeful and excited about paying off your debt.

The debt avalanche strategy works similarly, except you focus on repaying your debt in order of highest to lowest interest rate. This method helps you save money on interest.

If you’ve done all this and can’t afford to make your payments, your next step is to contact your creditors and tell them about your situation. They may be willing to reduce your interest rate, pause fees, or give you more time to pay. If you’re already behind on your payments, they may agree to settle the debt for less than the total amount owed.

Pros of DIY debt relief:

  • No payments to third-party service providers
  • Get on track without involving the legal system
  • May be able to resolve your debt without damaging your credit 

Cons of DIY debt relief:

  • Potential lack of negotiating experience could make it difficult to secure deals with creditors
  • Potentially long journey to debt freedom
  • You may repay the full amount owed

Is DIY debt relief right for you?

DIY debt relief could be your best bet if your accounts aren’t in collection and you have the means to make consistent payments. However, if there’s no way you can keep up with your bills, you may want to explore other alternatives, like debt settlement or bankruptcy.

Draw on your home’s equity

If you own a home, you may be able to borrow against the equity you’ve built up to consolidate your other debt. Your equity is the difference between how much your property is worth and how much you owe on your mortgage. Since property values have appreciated significantly in many areas over the last couple of years, you may have more equity than you think.

You can draw on your home’s equity through a home equity loan or a home equity line of credit (HELOC). A home equity loan has a relatively low fixed interest rate (currently around seven percent). You’ll borrow a lump sum and make equal monthly payments for the entire loan term (five to 30 years). 

A HELOC has a variable interest rate, so your payments will likely fluctuate over the life of the debt. You can use up to your credit limit during the draw phase (the first five to ten years). During the draw phase, you’ll only have to pay the interest on your balance. Once you enter the repayment phase (which lasts ten to 20 years), you can no longer borrow from the line of credit and must make full principal and interest payments. 

If you take out a HELOC, paying the principal during the draw phase may be wise. That way, you’ll save money on interest, and your payments will be lower during the repayment phase.

Both options require a home appraisal. Plus, you may need to pay closing costs, so factor these expenses into your debt relief decision. Closing on your home equity loan or HELOC could take up to two months.

Like other debt consolidation options, a home equity loan or HELOC can simplify your bill-paying process since you won't have to make as many monthly debt payments. However, credit cards with a lot of available credit could tempt you to take on new debt, defeating the purpose of the consolidation.

Pros of using home equity

  • Relatively low interest rate
  • Longer repayment term
  • Potentially higher loan amount than other options

Cons of using home equity

  • Risk of foreclosure if you don't pay
  • HELOCs have a variable interest rate
  • Credit cards with a zero balance could tempt you to spend

Final thoughts

It can feel like you’re drowning when you have too much debt. Fortunately, you have several debt relief options to take control and, ultimately, become debt-free.

Did you know you could tap into your home equity without having to make monthly payments or meet the strict underwriting guidelines of a home equity loan or HELOC? When you partner with Point on a Home Equity Investment (HEI), you’ll receive a lump sum in exchange for a portion of your property’s future appreciation. 

Learn more and see if you qualify today!

Frequently Asked Questions

No items found.

Point in the media

Our innovative products have been featured in top publications.

Business Insider
Point CEO, Eddie Lim made Business Insider's 100 people who are transforming business
Every year, Insider surfaces 100 leaders across 10 industries who are driving unprecedented change and innovation. Lim, the CEO and cofounder of Point, wants to make it easier for people to tap into that wealth. Lim’s company, which he founded alongside Eoin Matthews in 2015, offers homeowners lump sums of cash in exchange for a stake in their home.
Read this article
Point closes on $115M to give homeowners a way to cash out on equity in their homes
Historically, homeowners could only tap into the equity of their homes by taking out a home equity loan or refinancing. But a new category of startups have emerged in recent years to give homeowners more options to cash in on their homes in exchange for a share of the future value of their homes.
Read this article