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How Does Debt Relief Work?

It really is possible to lower your debts, especially if you have a little help. In this article, we’ll break down two of the most popular ways to lower your debt: debt consolidation and debt relief.

C. Tarantino

September 15, 2022

Millions of Americans struggle with debt every year, but that doesn’t mean that everyone stays in debt. And getting out of debt doesn’t mean skipping the avocado toast and making coffee at home: the blanket “financial advice” you’ve probably heard isn’t all that helpful. For real change, many Americans lower their debts by bringing in the professionals.

Debt Consolidation and Debt Relief are two of the more popular professional debt-lowering services. Although both services try to lower debt, they have their differences. Debt consolidation is mostly a DIY approach, where a person in debt combines their various debts into one, easy-to-manage loan payment. Debt relief requires customers to work with a team, in which professional negotiators argue directly with a customer’s creditors to lower a customer’s debt total.

We’ll break down both services in detail, so you can decide if either service is the debt fix you’ve been looking for.

What is Debt Consolidation?

Debt consolidation does exactly what it says in the name: it combines multiple debts into one. There are three different strategies you can use, but they all achieve the same goal: instead of tracking multiple monthly payments, one for every bill you owe, you’ll just have to track and pay for one.

With one, easy-to-track payment each month, you’ll likely be less stressed about managing everything, and, depending on what your new loan is like, you may end up saving money in the long run.

Here are the three most common debt consolidation methods:

  • Debt Consolidation Service: In this hands-off approach, you’ll hire a third-party debt consolidation company, that either helps you find a loan or completely designs your consolidation method for you.
  • Debt Consolidation Loan: This is the most common, DIY method. After taking out a new loan, you’ll use it to pay off your current debts, and then work to pay off this new, solo monthly payment.
  • Credit Card Transfer: Another DIY option, you can also consider applying for a credit card with a low promotional APR. Just like the loan, once you’re accepted, you transfer your debts onto the new credit card and focus on paying this one monthly payment.


  • Consistency: A consolidated debt will be the same recurring payment every month, with the same due date.
  • Lower Payments: Your monthly loan payment is likely to be lower than your previous debt payments.


  • May Pay More: If the terms of your loan are unfavorable, you may owe more money over the life of your new loan when compared to your old debts. For example, if you take out a 6-month 0% APR credit card, but couldn’t quite pay off all your debts during those 6 months, you’d run the risk of high-interest payments on your remaining debts.
  • Missed Payment Fees: A missed payment towards your consolidated loan could tack on pricey fees, fees that are higher than those of a missed single debt payment.

What is Debt Relief?

Debt relief (sometimes called debt settlement) is a service designed to help lower a customer’s debts. A team of negotiators works with the customer’s creditors to settle on a lower debt amount than the original bill.

It works like this: once you hire a debt relief company, they’ll ask you to do two things. First, you’ll need to open some form of dedicated savings account and start adding money to it. Second, you’ll need to stop making payments on your debts (at least, any debt the debt relief company says it can help with).

The debt relief company will then call your creditors on your behalf, explaining that you can no longer make payments (hence why you stopped paying) but that they can settle for less than the full bill (which gets paid from that dedicated savings account).

We’ll be honest: debt relief should not be your first strategy when trying to get out of debt. It comes with higher risks: your credit score will take a hit once you stop making payments, your creditors might try to sue you, and there is no guarantee that they will settle. That said, if you’re already missing payments, or if taking the credit score hit in the short run will help you get out of your debt in the long run, than debt relief might be a useful option.


  • Less Debt: If a debt consolidation company is successful on your behalf, you owe less debt, which is never a bad thing.
  • No Fees Unless Successful: Most debt consolidation companies are not allowed to charge you for their services unless they successfully lower your debt amount.


  • Hit to Credit: While you stop paying your debt minimums, you run the risk of greatly lowering your credit score.
  • Legal Action: When you stop paying your debt minimums, you’re at great risk of legal action from your creditors.
  • Taxes: Keep track of how much debt is forgiven throughout the settlement process. In most cases, the IRS counts this as income and you’ll need to pay taxes on it.

Start Tackling Debt Today

Debt consolidation and debt relief services have their advantages and shortcomings, but either could be your ticket to a debt-free life.

If you’re looking to lower your debts, the next step is to get quotes from debt consolidation and debt relief companies. To save time and avoid scams, start your search with the debt professionals on our website.

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