Is Debt Relief Ever Free?

Young couple with baby sitting at table reviewing finances.

Sometimes you just need a little relief. Relief from pain, relief from stress, relief from a hectic home life or an overbearing job. Maybe you need some financial relief from rising prices and stagnant wages.

Or maybe you need relief from one our biggest sources of financial discomfort: debt. Debt relief is something many companies and organizations are happy to offer you, but not all forms of "debt relief" are created equal. So let's explore the concept of debt relief: who offers it, how does it work, and is it ever actually free?

What is debt relief?

Debt relief can refer to a wide variety of strategies or programs designed to help individuals, businesses, or even countries manage or reduce their outstanding debts.

Any program that aims to provide financial relief to people or entities struggling to manage their debt obligations could be considered a form of debt relief. Here are some of the common forms of debt relief:

Debt settlement

You're probably familiar with the concept of a settlement: the debtor negotiates with their creditors to reach an agreement on a reduced payoff amount. This is usually lump sum payment or s short-term repayment plan that is less than the total amount owed. You don't pay the full amount, but the creditor gets something rather than nothing.

You can use a third party company to help negotiate your settlement, but it's also something you can do on your own if you prefer.

Debt consolidation

This involves combining multiple debts into a single, more manageable loan or payment plan. Debt consolidation itself comes in multiple flavors (consolidation loans, balance transfers, etc.), but the ultimate goal is usually to simplify finances and lower overall interest rates, making it easier for the debtor to repay the debt. Depending on the type of consolidation you choose, you may need to take out a new loan or credit card (which can be challenging if your credit is already damaged).

Debt management plans (DMP)

DMPs are arrangements between debtors and credit counseling agencies. A credit counselor works with creditors to negotiate lower interest rates and an affordable monthly payment. The debtor then makes a single monthly payment to the credit counseling agency, which then distributes the funds to creditors.

The average interest rate for accounts on a DMP with MMI is about 7%, leading to some pretty massive savings.


In some cases, individuals or businesses may file for bankruptcy as a legal process to seek relief from overwhelming debt. Bankruptcy can involve the liquidation of assets (Chapter 7) or the restructuring of debts (Chapter 13 for individuals, Chapter 11 for businesses). It can be a tough process, but if you don't have enough income or if your debts severely outweigh your assets, it's a perfectly valid way to reset the clock and give yourself a chance to start over.

Debt forgiveness

In some situations, creditors may choose to forgive a portion of the debt owed. (This is functionally what happens in a debt settlement.) Typically, creditors won't offer any amount of forgiveness until the account is already multiple months behind and charged-off, which is a bookkeeping move where the creditor marks the debt as a loss in their ledger. Just because the debt is charged off, though, doesn't change the fact that you're on the hook for paying it off.

Government debt relief programs

Governments may implement programs to assist individuals or businesses facing financial hardship, especially during a major financial crisis (see the 20202 pandemic). These programs could include subsidies, loan forgiveness, or other forms of financial assistance.

Is debt relief ever free?

Unfortunately, the majority of debt relief options available come with at least some kind of cost.

  • Debt settlement may reduce the amount that you have to pay back, but you do have to make a payment of some amount. Settling your debts can also have a lasting negative impact on your credit score, making future loans and credit cards more expensive.
  • Debt consolidation may make it easier to manage your debts, but it's essentially just transferring your entire debt to a new loan or credit card. The terms will hopefully be better, making payments easier, but it's certainly not free.
  • Debt management plans are typically facilitated by nonprofit agencies, and the reduced interest rates can create massive savings, but you will most likely be repaying your debts in full. There may also be a set-up fee or monthly fee. Your monthly payments may be much more favorable and you'll almost certainly get out of debt faster, but it won't be free.
  • Bankruptcy can result in a repayment plan or the liquidation of assets to repay your creditors. While both options will likely cost less than repaying your debts in full, but neither is free, and both can include costly court fees (on top of any fees you may pay your bankruptcy attorney).
  • Debt forgiveness can potentially lead to an increased tax bill. Depending on the debt type and the amount, a forgiven debt many be considered as income, which could have a costly impact when it comes time to file your taxes.

There are some forms of debt relief or assistance that are truly free, but they may be limited in scope or highly specific to a certain groups.

  • Nonprofit credit counseling agencies generally offer debt and budget counseling for free. This is a great way for individuals to assess their financial situation, get impartial, expert advice, create a budget, and explore debt repayment options. While the counseling is free and comes with no obligation, keep in mind that if a debt management plan is recommended, there may be associated fees.
  • Government programs may be available that offer truly free debt relief assistance. This could include assistance for specific groups or in response to economic crises. However, the availability of such programs can vary, and they may be limited in scope.
  • Charitable organizations may provide grants or other financial support to help members of the community. These tend to be location-specific and geared toward serving particular groups or challenges.

Before engaging with any company or organization claiming to offer debt relief, be sure to do your research. Check reviews and the Better Business Bureau. Unfortunately, there are way too many debt relief scams out there trying to take advantage of vulnerable people looking for help.

Tagged in Debt strategies, Financial scams

Jesse Campbell photo.

Jesse Campbell is the Content Manager at MMI, with over ten years of experience creating valuable educational materials that help families through everyday and extraordinary financial challenges.

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