Your Guide to Emergency Debt Relief Options

Finding help when you need emergency debt relief can be incredibly stressful, especially if you’re worried about making your mortgage payment or paying other important bills. The good news is that whether you’ve experienced a sudden job loss, natural disaster, emergency room visit, or something else, there are many different options you can turn to for help.

In this article, you’ll learn about several emergency debt relief options, including debt consolidation, debt management plans, debt settlement options, government programs, nonprofits, and charities that are all designed to help people in need.

Table of Contents

1. What qualifies as emergency debt relief?
2. Emergency debt relief options
3. Government assistance programs
4. Nonprofit and charitable organizations
5. When to consider debt relief companies
6. Steps to take during a financial emergency

What qualifies as emergency debt relief?

There are many different types of emergency debt relief. When most people hear that term, they might think of bankruptcy or working with a debt settlement company. However, there are many other options, too, like consolidating your debt or working with a charity to get short-term help. 

Here are a few scenarios when people might need emergency debt relief:

• Unexpected job loss: If you lose your income, especially if you’re the breadwinner in your family, you might need emergency debt relief.
• Medical emergencies: If you have to take an unexpected trip to the emergency room or your child has to have emergency surgery, you might need emergency debt relief, especially if you don’t have adequate health insurance coverage.
• Natural disasters: A natural disaster can be especially tumultuous. Many nonprofits and charity organizations can help with essentials, including short-term housing.
• Divorce or separation: Many charities help single mothers or fathers who need additional financial help after a divorce or separation.

Emergency debt relief options

Here are several emergency debt relief options. Depending on your income, credit score, and level of need, some solutions might be better than others.

Debt consolidation

Debt consolidation is when you combine several different debts into one loan, usually with a lower interest rate. The benefit of doing this is you can save money on interest and streamline your monthly payments, which makes it easier to budget and predict your expenses from one month to the next.

Pros and cons

Here are some of the benefits and drawbacks of debt consolidation:

Pros

• Predictable payments

  Consolidating several loans into a single, fixed-rate loan can give you predictable monthly payments.

• Improved credit score

  If you consolidate high-interest credit card debt into a personal loan, your credit score can improve because you’ll lower your debt-to-credit ratio.

• Lower interest rates

  Debt consolidation loans typically have lower interest rates than credit cards, which can help save you money on interest over time.

Cons

• Requires good credit

  Debt consolidation loans usually require borrowers to have good credit and a stable job history, which might make it unreachable for many consumers.

• Risk of accumulating more debt

  Once you pay off debt like credit cards and combine them into a consolidated loan, it can be easy to go into debt again once those accounts have “space” again.

• Fees

  Sometimes, debt consolidation loans come with hefty fees, like origination fees. Before choosing a lender, compare its fees and funding timelines in addition to the interest rate.

Debt management plan

A debt management plan (DMP) is when you work with a credit counseling agency to help you reduce the total amount of debt you owe. The agency creates a plan for you by combining your debt into one payment. When you make these payments to the agency, the company sends them to your creditors.

The agency will likely require you to close your credit accounts, which can hurt your credit score, and you won’t be allowed to open new accounts. However, once you pay back your debt, your credit score can improve. Also, remember that even if a DMP is a nonprofit, the agency typically charges fees for managing your account.

Pros and cons

Pros and cons of DMPs include:

Pros

• Structured repayment plan

  A DMP provides a clear repayment plan, making it easier to stay on track.

• Reduced interest rates

  Credit counseling agencies often negotiate lower interest rates with creditors, which can save money over time.

• Single monthly payment

  Combining debts into one payment simplifies budgeting and eliminates the stress of managing multiple due dates.

Cons

• Credit score impact

  Closing credit accounts as part of the plan may negatively affect your credit score.

• Restricted credit access

  You won’t be able to open new accounts while on a DMP.

• Fees

  Nonprofit agencies often charge setup and monthly maintenance fees for the service.

Debt settlement

Debt settlement is when you, or a debt settlement company, negotiates with your credits to settle your debt. Usually, this means you make a lump-sum payment, and in return, your lender marks your debt as paid.

If you work with a debt settlement company, the downside is that you must stop making payments on your accounts. This puts your accounts in default, making your lenders more likely to settle. While this tactic can be effective for negotiating, it will harm your credit score since your payment history makes up 35% of it.

Pros and cons

Pros and cons of debt settlement include:

Pros

• Potential savings

  You may be able to settle your debt for less than what you owe.

• Avoid bankruptcy

  Debt settlement can provide relief without resorting to bankruptcy.

Cons

• Credit score damage

  Defaulting on payments significantly harms your credit score.

• Fees

  Debt settlement companies charge fees, often a percentage of the settled amount.

• No guarantees

  Creditors are not obligated to settle, and some may refuse.

Bankruptcy

According to data from the United States Courts, the amount of personal and bankruptcy filings increased by 16.2% from the previous year. Although bankruptcy can help grant you debt relief, filing for bankruptcy is a last resort. A bankruptcy remains on your credit for seven years, making it challenging to borrow money in the near future.

If you have questions about bankruptcy, it’s important to contact a bankruptcy attorney. Many of them offer free consultations and can help you understand your options.

Pros and cons

Pros and cons of bankruptcy include:

Pros

• Debt discharge

  Bankruptcy can eliminate most unsecured debts, offering a fresh financial start.

• Legal protection

  Filing for bankruptcy triggers an automatic stay, stopping creditor harassment and collections.

Cons

• Severe credit impact

  Bankruptcy remains on your credit report for seven years (Chapter 13) or ten years (Chapter 7).

• Cost

  Filing fees, attorney fees, and mandatory credit counseling can be expensive.

• Loss of assets

  Depending on the type of bankruptcy, you may lose certain assets to repay creditors.

Government assistance programs

If you need help with basic living expenses, here is a list of several government assistance programs that provide help with food, housing, energy bills, and other necessities. Using government assistance can help you to free up cash that you can use to pay off debt.

Government program	Type of aid	Eligibility requirements
SNAP/Food Stamps/WIC	Assistance purchasing food	Low-income individuals and families
Low Income Home Energy Assistance Program (LIHEAP)	Helps reduce the cost of energy bills, weatherization, home repairs related to energy	Low-income individuals and families
Health Insurance Marketplace	Subsidizes health insurance costs	Low-income individuals and families
Medicaid	Health insurance coverage	Low-income individuals
Children’s Health Insurance Program (CHIP)	Low-cost (or free) medical and dental plans for uninsured children	Family income higher than Medicaid’s limit but too low for private coverage
Public Housing	Rental housing	Low-income families, the elderly, and those with disabilities
Supplemental Security Income Program (SSI)	Cash aid	Low-income seniors and disabled adults and children
Welfare or Temporary Assistance for Needy Families (TANF)	Cash aid, food, housing, home energy, child care, or job training	Low-income individuals and families
Head Start	Free or reduced early childhood education	For children from birth to age five for low-income families

Please note that while there used to be an Affordable Connectivity Program (ACP) that provided free high-speed internet to needy families, the program closed in June 2024 due to a lack of congressional funding.

Nonprofit and charitable organizations

Here is a list of several nonprofits and charitable organizations that help if you experience financial hardship or a natural disaster. Getting help with rent, food, and even holiday giving can help alleviate the pressures of paying off debt.

Nonprofit or charity	Type of assistance	Eligibility requirements
Catholic Charities	Short-term cash aid, food, utility bills, funeral and burial help, medical needs, dental care, rental assistance, emergency temporary housing, home repairs, and more	Demonstrate financial need and can be any background or religion
FEMA	Aid for disaster recovery, such as money for assistance and temporary housing	U.S. citizen whose primary residence was damaged in a disaster
The Salvation Army	Help with holiday giving, rent and utility assistance, food pantries, disaster relief, LGBTQ+ Support, job training, and more.	Low income individuals and families
Dollar For	Assistance applying for medical relief	Varies by state and hospital, fill out a form on their website to see if you’re eligible

This is not a comprehensive list of places to get help. FEMA maintains a list of places to get aid, along with phone numbers, organized by state. 

If you find yourself needing emergency debt relief, the first thing I recommend you do is contact your lenders to let them know. Second, contact a not-for-profit debt counselor who can guide you through this process, for example, the National Foundation for Credit Counseling or a local organization. 

If you haven’t already, I also advise getting your income sources and expenses together to create a budget spreadsheet (you may need the assistance of a financial professional to do this).

Erin Kinkade, CFP®

When to consider debt relief companies

According to data from the Federal Reserve, the total amount of household debt reached nearly $18 trillion in Q3 of 2024. Of that, credit card balances make up $1.17 trillion, a new record after increasing $24 billion from the second quarter of 2024. These rising debt balances show that people are struggling with increasing costs.

If this is you, a debt relief company might be able to help, especially if you want someone to negotiate with your creditors on your behalf. Alternatively, you can call creditors and negotiate debt settlements yourself without paying fees to a debt relief company.

Steps to take during a financial emergency

It can feel incredibly overwhelming if you are in the middle of a financial emergency. Here are a few steps to take if that happens:

1. Assess your financial situation

First, do a complete assessment of your financial situation. Write down all of your bills and mark down which ones are currently overdue. Next, write down your income. See if there are any opportunities to cut expenses to create more space for necessities, like your mortgage or rent payments, utility payments, water bill, and vehicle-related expenses. 

Depending on your individual budget, you might have to prioritize which bills you pay first. Communicating with your lenders, landlord, and other utility companies is important during this time, too.

2. Communicate with creditors

Many companies, including federal student loans, mortgage lenders, utility companies, and credit card companies, have programs in place to help customers or borrowers who are struggling financially. By contacting your creditors ahead of time and letting them know you are having financial trouble, you are much more likely to get access to these options.

3. Seek professional advice

We all need an expert in our corner when life gets challenging. A Certified Financial Planner (CFP), a money coach, or a nonprofit credit counselor can help guide you in the right direction regarding improving your money situation. Many of these professionals went into financial services to help others who need money advice.

4. Create a budget

If at all possible, create a realistic budget that will enable you to meet your monthly payment obligations. Additionally, see if there is an opportunity to add on a side job. Working extra for a short period of time can help you climb out of a difficult financial situation.

How to prevent future financial crises

According to research from the TIAA Institute, 42% of adults report that money struggles directly contribute to poor mental health. Building a solid emergency savings fund, tracking your spending, and paying down debt over time can help alleviate financial stress and reduce the need for emergency debt relief in the future.