Credit Card Debt Relief: Here are the 5 Best Options

You don’t need to have $50,000 in credit card debt to know you’re in trouble. There are some telltale signs that it’s probably the right time to seek debt relief.

First is when you have no chance of repaying all unsecured debt within five years. Unsecured debt includes credit cards, medical bills, utility bills, and other credit without any collateral.

Second, the debt amount totals half or more of your gross income. These scenarios should prompt you to seek a debt relief option.

_{Disclaimer: Credit Summit may be affiliated with some of the companies mentioned in this article. Credit Summit may make money from advertisements or when you contact a company through our platform.}

Key Takeaways

There are five key ways to get credit card debt relief.

• Settle the debts for a total payment that’s less than you owe
• Use a low-interest debt consolidation plan
• Use a balance transfer credit card so you can make payments on your debt without accruing interest
• Ask a credit counselor for help
• File for bankruptcy

The key to success is figuring out which works best for your financial situation.

At a Glance: The Best Relief Options to Eliminate Credit Card Debt

	Best for…	Time to complete the program	Does it close credit cards?
Debt settlement	Paying off multiple credit cards	1-4 years	Yes
Debt consolidation loans	People with good credit scores	It can sometimes take five or more years	No
Balance transfer credit cards	People with low balances	Usually about 18 months	No
Debt Management Plan	People who need to minimize credit score damage	2-4 years	Yes
Bankruptcy	Low-income filers	Chapter 7: 4-6 months Chapter 13: 3-5 years	Yes

How to Find Credit Card Relief in 3 Easy Steps

• Step 1: Do your homework and pick the method that works best for your priorities
• Step 2: Schedule a free consultation
• Step 3: Review your options and choose the best one

Choosing a Relief Strategy

Best for Paying Off Multiple Credit Cards: Debt settlement

• Who it works best for: Anyone who has more than $7,500 in unsecured debt (like credit card debt, medical bills or personal loans) or $1,000 in payday loan debt who wants to get out of debt without repaying the full total. 
• Who it won’t work for: Anyone with less than $7,500 in unsecured debt (or $1,000 in payday loan debt) who needs to maintain a good to excellent credit score within the first months of the program.

Cost	Anywhere from 15% to 27% of your total enrolled debt
Time until you’re debt-free:	Anywhere from one to four years
Credit score impact	Your credit score will be hurt significantly at first but will rebound once your settlements are paid
Upfront fees	None
Monthly cost	You will make a fixed monthly deposit into a savings account that will be used to pay your settlements
Advantages	You will get out of debt while paying less than the total you owe Debt won’t be sent to collections or charged off You may be able to keep yourself out of court You won’t have to file for bankruptcy Results are relatively quick compared to other options Works with most unsecured debts, not just credit card debt
Disadvantages	Only unsecured debts can be settled You need to have a minimum of $7,500 in unsecured debt, or $1,000 in payday loan debt You’ll rack up late fees in the early days of the program Your accounts will be closed as they’re settled Creditors aren’t obligated to settle There are a lot of scam companies

How Much Does Debt Settlement Cost?

The fees for debt settlement sound expensive at 15% to 27% of your enrolled debt. However, there are a few factors to consider. 

1. You’ll be getting out of debt without paying the full amount you owe. According to the American Association for Debt Resolution, the average debt settlement customer saves 30% on an enrolled debt after fees. That means that if a $10,000 debt is settled, you’ll pay a total of $7,000 after the fees. That’s a savings of $3,000. 
2. There are no upfront costs. You pay nothing until settlements have been reached. That means that if a creditor refuses to settle, you pay no fee at all and the money in your escrow account reverts back to you.

READ MORE: Debt settlement costs

How It Works

A third-party debt settlement company reviews your financial situation and contacts your creditors to “settle” debts: This means your debt is written off as paid even though you’ve paid less than the full amount you owe.

The first step is to schedule a free consultation. The company will review your situation to ensure that you meet the qualifications and that debt settlement is your best option.

After that, the company will ask you to stop paying any debts you’re enrolling in the program. While it sounds like this would worsen your situation, there’s a simple reason for temporarily stopping payments: Creditors will not consider settlements until an account has been charged off. This usually happens after anywhere from three to six consecutive payments.

READ MORE: Best debt settlement companies

In the meantime, instead of making those monthly payments, you’ll send those payments to your debt settlement company, where they will be deposited into a bank account, where your money will be held so that you can accrue some savings to put toward settlement offers.

Most creditors are more likely to consider settlements if evidence shows that the debtor can pay the settlement.

Pro tip: Despite what some experts say, debt settlement will not decimate your credit score for seven years. Your credit score will initially fall when you stop making your payments and even more when accounts are charged off. However, once your accounts have been settled, the charge off notation will be removed and your credit score will rebound. 

READ MORE: How debt settlement works

Best for Keeping Your Accounts Open: Debt Consolidation Loan

• Who it works best for: Borrowers with a good to excellent credit score.
• Who it won’t work for: Borrowers with poor credit who will either be charged high interest rates or won’t be approved for a loan at all.

Cost	An average APR ranging from 6% to 36% depending on your credit score
Time until you’re debt-free:	It depends on the total amount of debt you have and the minimum payment you can afford, but usually five years or more
Credit score impact	Your credit score will fall from the hard credit inquiry when you apply for the new loan. However, the impact will be minimal as long as you make your payments
Upfront fees	Some lenders charge a small loan origination fee
Monthly cost	It depends on the total debt you consolidate, but expect a minimum monthly payment of about 4% of your total debt (for $10,000, that would be about $400 per month
Advantages	Simplified finances One monthly payment Lower interest rate Fixed repayment schedule
Disadvantages	You will need a good credit score to be eligible for the best interest rates It doesn’t make sense to consolidate if you can’t get a better interest rate Upfront costs If you miss payments, you’ll end up in a worse spot It won’t fix the issues that got you into debt in the first place

How It Works

A debt consolidation loan will be a good option if you have good credit, particularly if you don’t have enough debt to be eligible for debt settlement. 

As long as you find a loan with good terms, low or no upfront fees and a low interest rate, it will save you money each month, particularly if you’re juggling multiple minimum payments.  This gives you extra money to pay for your other expenses without using credit cards.

Since most debt consolidation loans have longer loan terms, your monthly payment can be lower. Remember that the longer the loan term, the more you’ll pay in accrued interest.

READ MORE: Step-by-step guide to payday loan consolidation

Pro tip: Debt consolidation lenders usually don’t require you to close your consolidated accounts, though there may be exceptions if they think you’re at high risk of running up your newly paid-off credit cards. This is more common with small credit unions or community banks.

READ MORE: Debt consolidation and best loan options

Best for Low Balances: Balance Transfer Credit Card

• Who it works best for: People with a relatively low amount of unsecured debt and a high credit score.
• Who it won’t work for: Anyone with a credit score below about 650 or who has enough debt that they won’t be able to pay it off during the introductory period.

Cost	Until the introductory period expires, just the balance transfer fee. If you can’t pay it off before the introductory offer runs out, you’ll pay a standard credit card APR, usually around 18%
Time until you’re debt-free:	18 months, if you can pay your debts off before the offer ends
Credit score impact	Minimal, though your credit score will probably fall a bit from the hard credit inquiry when you apply for the new card
Upfront fees	Balance transfer fee ranging from 3% to 5% of each debt transferred
Monthly cost	It depends on the total debt you transfer, but expect a minimum monthly payment of about 4% of your transferred debt
Advantages	Simplified finances One monthly payment No interest
Disadvantages	You will need a good credit score to be eligible for the best offers Balance transfer fees If you miss payments, you’ll end up in a worse spot It won’t fix the issues that got you into debt in the first place

How It Works

You may have seen an offer in the mail or by email. A credit card company will send you some blank checks and an offer to open a new credit card account. They want you to use those blank checks to pay off your other debts, thus transferring them to your new account with their financial institution.

This can be a low-cost way to get out of debt – for the right people. If your total debt is low enough, your credit score is high enough and you’re organized enough to pay as much as you need to each month in order to pay your debt off by the end of the introductory period, this is a great option for you. Credit card companies are gambling that you won’t be able to do this.

Once the interest kicks in, these aren’t as much of a bargain.

For example, if you have $10,000 on your Discover card at 18% APR with a minimum payment of $250 per month and you transfer it to a Chase card with 0% APR for 18 months, you’ll need to bump your monthly payment to $572 a month to get out of debt before the offer runs out, but you will only repay a total of $10,300.

If you transfer the money to a new card with an 18-month introductory offer and make the minimum monthly payment of $258, it will take 45 months to pay off your debt and you will pay $1,254 in interest and fees. This is a total of $11,554.

Meanwhile, If you leave the $10,000 on your Discover card and keep paying the $250 minimum payment, it will take 62 months to pay off your debt, costing $5,386 in interest and fees. This is a total of $15,386.

Pro tip: Debt settlement will cost less overall than any of these three scenarios.

READ MORE: Balance transfer credit cards

Best for keeping cards open: Debt Management Plan (Professional Credit Counseling)

• Who it works best for: People whose unsecured debts are all credit-card based and who don’t have enough debt to be eligible for a debt settlement program.
• Who it doesn’t work for: People with unsecured debts that don’t involve credit cards.

Cost	The initial consultation is free, but if you commit to a Debt Management Plan you’ll pay a setup fee, then a monthly fee.
Time until you’re debt-free:	Four to five years
Credit score impact	Minimal
Upfront fees	Setup fee to develop your Debt Management Plan
Monthly cost	Varies; usually between $25 to $75 per month
Advantages	Simplified finances Financial education One monthly payment Lower interest rates
Disadvantages	You’ll still pay the full amount you owe If you miss payments, you’ll end up in a worse spot Almost half of the enrollees don’t successfully complete their DMP It won’t fix the issues that got you into debt in the first place  Your credit card accounts will be closed

How It Works

Credit counseling agencies offer free financial education programs and other educational services. However, not all services are free. A Debt Management Plan is one of their paid services.

As part of the DMP, a  credit counselor will contact your credit card issuers to negotiate a lower interest rate. That credit counselor will develop a Debt Management Plan to be presented to your lenders.

If you don’t owe enough money to qualify for debt settlement or your credit score isn’t good enough for debt consolidation, a DMP could be a viable option to get out of debt. 

If your creditors approve the debt management program, you’ll make a single monthly payment to the credit counselor instead of paying the credit card companies directly. The credit counselor then uses that money to make your credit card payments. The entire repayment process will take two to five years. 

Pro tip: Just because it’s called a nonprofit credit counseling agency doesn’t mean it will be free. 

You will also be required to close your credit cards so you won’t accrue more debt, though you might be allowed to keep one account open for emergencies. 

The credit counseling industry was formed when the country’s leading creditors joined forces to establish the National Foundation for Credit Counseling (NFCC).

The group’s mission was to teach financial education and help prevent customers with excessive amounts of credit card debt from filing for bankruptcy (because if that happens, credit card companies often get nothing). This also means that the same credit card companies you’re struggling to repay are subsidizing your credit counselor.

Pro tip: This means the counselor you pay to represent you may not always act in your best interest.

Credit counseling agencies have drawn a fair amount of criticism that consumer advocates see as taking advantage of people who are struggling financially. 

This includes:

• Charging high fees
• Failing to meet required standards
• Failing to provide affordable solutions
• Neglecting to inform customers of other debt services elsewhere
• Ambiguous qualification standards

If you choose a Debt Management Program, choose a credit counseling agency accredited by the National Foundation for Credit Counseling (NFCC.)

Best for Low-Income Debtors: Bankruptcy

• Who it works for: People with completely overwhelming debt who meet the income criteria for Chapter 7 bankruptcy.
• Who it doesn’t work for: Anyone who thinks they may need to borrow money in the next seven years. 

Cost	Varies. You can DIY for about $500 in fees and miscellaneous expenses, or significantly higher if you work with a bankruptcy attorney.
Time until you’re debt-free:	Chapter 7: Three to five months Chapter 13: Three to five years
Credit score impact	Significant. Your credit score could be knocked down hundreds of points and it’s unlikely you’ll be able to qualify for a new loan for several years
Upfront fees	Mandatory credit counseling fees, court costs and filing fees
Monthly cost	There’s usually no monthly fee, but if you choose to work with an attorney you’ll have to pay an hourly rate
Advantages	Chapter 7 wipes out many unsecured debts completely The automatic stay stops debt-collection efforts Gives you a complete financial reset
Disadvantages	When you file, your accounts will likely be closed Court appearances are inconvenient Bankruptcy attorneys are expensive You may not have enough money to pay the mandatory expenses You may not meet the income requirements for Chapter 7 Chapter 13 usually requires you to repay what you owe through a payment plan Could affect employment offers or rental applications Your co-signers aren’t off the hook for the debt

How It Works

There are two primary forms of consumer bankruptcy: Chapter 7 and Chapter 13.

Chapter 7 is a liquidation bankruptcy. There is no repayment plan. Chapter 7 bankruptcy erases many types of debt, including credit card debt, medical bills, car loans, payday loans, and utility bills. These are known as dischargeable debts. However, you will have to pass a means test to be eligible to file. It will stay on your credit report for ten years.

Chapter 13 is known as a wage-earners plan. Chapter 13 filings are for people who have a steady income. They will repay all or part of their debt through a repayment plan over three to five years. When you file for Chapter 13, an impartial bankruptcy trustee will be appointed to handle your case. There is no income requirement, but the debt must be below a certain threshold. Chapter 13 stays on your credit report for seven years.

In either case, as soon as you file for bankruptcy, an automatic stay will be issued, temporarily stopping all debt collection efforts, including foreclosure and car repossession. 

Bankruptcy Costs

Bankruptcy is not cheap. There are some mandatory expenses, including about $100 for two mandatory credit counseling sessions, and between $315 and $350 in court fees, depending on the type of bankruptcy you file. 

In addition, if you need an attorney, you should expect to pay about $1,500 for Chapter 7 or $3,000 for Chapter 13.

Pro tip: Most bankruptcy lawyers offer a free initial consultation. This can be a great opportunity to explore whether bankruptcy is right for you, what kind of bankruptcy you’d file, and what will be required.

What You Need to Get Started

Before you decide on a strategy, add up the costs:

• Calculate your fees
• Request debt verification letters from any collection agency that has contacted you
• List your creditors and how much you’re paying each one per month

Research Any Company You Choose

There are a lot of scams in the debt relief business. Watch out for any company that:

• Promises immediate results
• Demands upfront fees
• Cites vague “government programs”

If you think a scammer has contacted you, please report them to the Consumer Financial Protection Bureau (CFPB), the Federal Trade Commission (ftc.gov), and your state attorney general’s office.

Other Debt Solutions

• Take on a side hustle or ask for overtime
• Home equity loan or home equity line of credit (HELOC)
• 401(k) loan
• Debt snowball: Focus on paying the smallest debt first while making minimum payments on your other debts, then move on to the next smallest, and so on.
• Debt avalanche: Start by paying off the debt with the highest interest rate first while making minimum payments on your other debts. Then advance to the debt with the next highest interest rate. Keep going until you’re debt-free.

Check out this video to learn more about the differences between debt avalanche and debt snowball:

Does the Government Help with Credit Card Debt Relief?

No. While the government offers some student loan relief programs, there are currently none in place for credit card debt relief.  

However, the government regulates debt relief services.

• The Credit Card Debt Relief Act of 2010: This act prohibits debt settlement companies from charging upfront fees before completing a settlement. 
• Credit Card Forgiveness Act of 2020: Many credit card companies offered financial relief to customers who were impacted by the coronavirus pandemic. Though many of these programs have expired or ended, it never hurts to call your credit card company and ask if they offer hardship programs or would be willing to lower your interest rate.
• The Uniform Debt Management Services Act: This is a national effort to implement uniform rules to regulate debt settlement companies and consumer credit counseling services. The Act provides registration, bond, certification, and disclosure requirements and penalties for non-compliance.

The Bottom Line

If your credit card debt is keeping you awake at night, or you have so many monthly payments that you can’t keep up, now is the time to act before the situation gets worse. 

The key is finding the best method for you and a plan you can stick with. 

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