Debt Relief Programs: Pros, Cons, and When They’re Actually Worth It

Debt relief programs can be effective, but only for the right person in the right situation.

These programs are designed to help borrowers who can’t realistically keep up with unsecured debt by negotiating lower payoff amounts with creditors. For some, that can mean substantial savings. For others, the risks (credit damage, fees, and taxes) outweigh the benefits.

Below, we break down the real pros and cons of debt relief programs, explain when they’re worth considering, and show how reputable companies such as National Debt Relief, Freedom Debt Relief, and Accredited Debt Relief handle each aspect of the process.

Table of Contents

1. 7 pros of debt relief programs
   1. 1. Debt reduction
   2. 2. Hands-off negotiation
   3. 3. Structured repayment plan
   4. 4. Lower stress and emotional relief
   5. 5. Avoid bankruptcy
   6. 6. Professional expertise
   7. 7. A solution when other options don’t work
2. 8 cons of debt relief programs
   1. 1. Damaged credit
   2. 2. Total cost
   3. 3. Fees
   4. 4. Risk of lawsuits
   5. 5. Potential tax consequences
   6. 6. Not all creditors participate
   7. 7. Limited state availability
   8. 8. Impact on future financial opportunities
3. Is a debt relief program worth it?
4. Best debt relief companies and how they differ

7 pros of debt relief programs

1. Debt reduction

Debt reduction is the primary reason people turn to debt relief programs. Reputable companies negotiate with creditors to settle unsecured debts for less than the full balance.

For example, National Debt Relief, our highest-rated debt relief company, estimates clients may reduce enrolled debt by up to 50% before fees, depending on creditor participation and hardship factors.

The company doesn’t charge fees until you approve a settlement and make your first payment, which helps ensure savings are real, not theoretical.

2. Hands-off negotiation

One of the biggest benefits of debt relief programs is removing yourself from direct negotiations with creditors.

Companies such as Freedom Debt Relief handle creditor communication on your behalf, which can significantly reduce collection calls and stress.

Freedom’s process includes a personalized plan and upfront education through its Freedom Debt Relief Promise, so consumers understand their options, even if debt settlement isn’t the best fit.

3. Structured repayment plan

Debt relief programs replace scattered bills with a single monthly deposit into a dedicated account used for settlements.

Accredited Debt Relief, which we rate best for customer experience, emphasizes predictable monthly payments and clear timelines. Many clients complete programs within 24 to 48 months, and the company doesn’t charge monthly membership fees, making the structure easier to manage for borrowers on tight budgets.

4. Lower stress and emotional relief

Debt relief doesn’t just address balances; it can reduce emotional strain.

Once enrolled, companies like National Debt Relief step in as the point of contact for creditors, which often reduces harassment and uncertainty. For borrowers already experiencing financial hardship, that breathing room can be a meaningful benefit while working toward a resolution.

5. Avoid bankruptcy

Debt relief programs can serve as a middle ground between struggling indefinitely and filing bankruptcy.

For borrowers who don’t qualify for refinancing or debt consolidation, companies such as Freedom Debt Relief help explore negotiated settlements that resolve debt without the long-term legal and credit consequences of bankruptcy, though credit damage is still a consideration.

6. Professional expertise

Negotiating debt successfully requires understanding creditor behavior, timing, and documentation.

Top-rated provider National Debt Relief employs experienced negotiators who specialize in unsecured debt settlements. This expertise can improve outcomes compared to attempting negotiations alone, especially if you’re managing multiple accounts or large balances.

7. A solution when other options don’t work

Debt relief programs are not designed for everyone, but they can be valuable for people who’ve exhausted safer alternatives.

If refinancing, consolidation, or budgeting strategies haven’t worked, companies like Accredited Debt Relief offer structured plans tailored to hardship situations, with clear expectations around timelines, costs, and credit impact.

The most common misconceptions I’ve seen clients have about debt relief programs are failing to realize the impact on their credit and not understanding that the forgiven debt will be taxed as income.

Erin Kinkade, CFP®

8 cons of debt relief programs

1. Damaged credit

Debt relief companies often negotiate with creditors after advising their customers to stop making payments. A negotiator must show creditors that the borrower can’t make payments or that it’s a financial burden.

However, creditors may report missed payments to the credit bureaus, which can decrease your score, push you into default or delinquency, and remain on your report for seven years or more.

• Student Loan Refinance
• Mortgage Refinance
• HELOC Refinance
• Auto Loan Refinance
• Reverse Mortgage Refinance
• Personal Loan Refinance

2. Total cost

By not making payments, you’ll fall behind, and creditors might also increase your interest rate and assess late fees, which pile up until your debt is repaid. 

Now, the debt relief company could succeed in reducing your debt, including interest and fees. But debt relief programs don’t guarantee results, so you could end up with more debt than you started with.

That said, the debt relief company will have you save your monthly payment money in an escrow account during the whole process. So if you’re not successful, you’ll be able to immediately use all of that savings to pay down the debt.

3. Fees

One of the main ways a debt relief company makes money is by charging settlement fees, typically between 15% and 25% of the original amount. So if you settle $100,000 of debt for 50% of what you owe, for instance, you’d pay your creditor $50,000 and owe the debt relief company between $15,000 and $25,000 for its help, which cuts into your savings.

Many debt relief companies also charge monthly fees that are added to your payment.

4. Risk of lawsuits

Creditors have the right to sue for an unpaid debt that’s late, often referred to as in default or delinquent. While they often resort to less aggressive means first (sending letters, for instance), your creditors could take you to court if you’re evasive or uncooperative. 

It usually takes several months before a creditor will sue. But there’s no universal timetable for how long a creditor must wait to pursue a debt you owe.

5. Potential tax consequences

The IRS considers canceled debt of $600 or more taxable income. It will be clear whether your agreement produces taxable income if you receive a 1099-C from a creditor. 

If your canceled debt is significant enough, this additional “income” could push you into a higher tax bracket, meaning you’ll owe higher taxes.

6. Not all creditors participate

Not all creditors are willing to work with debt relief programs. So some of your debts may remain unresolved, leaving you to manage them separately while still paying fees to the debt relief company for the accounts it settles.

7. Limited state availability

Not all debt relief programs are available nationwide. State regulations vary, and even the most reputable companies may not operate in all 50 states.

For example, National Debt Relief, Freedom Debt Relief, and Accredited Debt Relief each have different state coverage, which can limit options depending on where you live. Before evaluating a program’s benefits, confirm availability in your state, and understand any local consumer protection rules that apply.

8. Impact on future financial opportunities

Even after resolving your debts, late payments or settlements leave negative marks on your credit report, which can make it harder to qualify for future loans, credit cards, or even rental housing. Creditors may view you as a higher-risk borrower for years.

A nontraditional alternative method a client could use is simply asking a trusted family member (or friend) who is in a strong financial condition to pay off the debt. 

A promissory note outlining the repayment terms and associated consequences of lapses can be created between the two parties privately or drafted by an attorney, which I highly recommend.

Erin Kinkade, CFP®

Is a debt relief program worth it?

A debt relief program can be worth it if you’re dealing with unsecured debt you can’t realistically repay, and other options, such as refinancing, consolidation, or budgeting, are no longer viable.

These programs make the most sense when you’re facing financial hardship, falling behind on payments, and don’t expect to rely on credit in the near future. The trade-off is credit damage, fees, and potential tax consequences in exchange for lower total debt and a structured path forward.

If you can still afford your debt with lower interest or extended terms, safer options typically provide better long-term outcomes. Debt relief is best viewed as a targeted solution, not a first step.

Best debt relief companies and how they differ

Not all debt relief companies operate the same way. The most reputable providers charge no upfront fees, are transparent about risks, and are willing to recommend alternatives if settlement isn’t the right fit.

These are our picks for the three best options:

Choosing the right company depends on your debt type, balance, location, and risk tolerance, but working with a proven provider matters.