A Guide to Finding Your Best Debt Relief Solution

When it comes to your options for debt relief, there is no one-size-fits-all. It’s essential to have a good understanding of your financial situation and to take the time to explore all of the solutions available. With that in mind, we’ve broken down the five most common types of debt relief: what they are, their pros and cons, and how to figure out which is the right fit for you.

Credit Counseling

What is Credit Counseling?

We all need a little bit of guidance from time to time, and debt management is no exception. Often provided by financial education organizations, a session of credit counseling involves you and an experienced, professional credit counselor reviewing your financial situation. Together, you’ll look at:

  • How much you owe
  • Who you owe
  • The various interest rates on your accounts
  • The size of your monthly minimum payments
  • Your credit score, assets, and income
  • How you currently budget your money

After this thorough overview, your counselor will work with you to develop a plan to get your financial situation back on track.

Pros of Credit Counseling

  • No Impact on Your Credit Score: Because you are simply seeking advice on how to proceed with a debt relief plan, credit counseling has no impact (good or bad) on your score.
  • Learn Personal Finance Management from a Professional: Credit counselors are adept at helping consumers understand how to create a monthly budget, where to save, and how to rethink spending habits. Most people are not aware that they can seek out credit counseling even when they are not struggling with debt; all that is required is a desire to manage your money more effectively.

Cons of Credit Counseling

  • No Debt Forgiveness: Though credit counseling may give you the tools to tackle your debt, it doesn’t guarantee debt forgiveness. You’ll still have to resolve the full amount of your debt one way or another.

Credit Counseling is Right for Me If…

  • I want to learn how to manage my money better
  • I am not experiencing financial hardship and can repay my debts in full
  • My income allows me to make consistent payments towards my debt while managing essential monthly expenses

Debt Consolidation

What is Debt Consolidation?

Debt consolidation is the act of applying for a single loan in order to pay off all of your other debts. This leaves you with a single monthly payment rather than several payments. In theory, this one payment will be more manageable while lowering your interest rate, allowing you to pay off your debt faster.

Pros of Debt Consolidation

  • Simplify the Process of Paying Your Bills: Debt consolidation sees you going from multiple payments to different lenders with various deadlines every month to a single payment to an individual lender with one deadline to keep track of.
  • Potential Savings and Lower Interest Rates: Ideally, your debt consolidation loan should have a lower interest rate than you were previously paying on your debt, saving you money. Based on the terms of the loan and how much lower your interest rate is, you might be able to lower your monthly payment while paying off your debt faster.
  • If the Loan is Unsecured, No Property is at Risk: When you take out a secured loan, such as a mortgage or a car loan, you offer some of your personal property to secure the repayment of the loan with the lender. If you fall behind on repaying the loan, your lender can seize the property you pledged as payment. Unsecured loans, like many personal loans, do not require you to put up any property for the loan.
  • You Could Boost Your Credit: Consolidating your debt with a personal loan may lower your credit utilization rate and increase the number of on-time payments you make, both of which have positive effects on your credit score.

Cons of Debt Consolidation

  • Your Debt is Not Forgiven or Reduced: At the end of the day, you’ll still owe the same amount of money. If you don’t adjust your budget accordingly and change your financial habits, the debt will remain challenging to pay off.
  • Lengthy Repayment Terms: Repaying a debt consolidation loan can take anywhere from two to five years.

Debt Consolidation is Right for Me If…

  • I have a significant amount of debt
  • My debts are unsecured
  • My income allows me to make monthly payments comfortably
  • The interest rate for the loan I’m seeking is lower than the interest rate(s) of my debt

Debt Settlement

What is Debt Settlement?

During the process of debt settlement, you or a representative working on your behalf negotiate with your creditors to settle your debt for less than what you owe.

Pros of Debt Settlement

  • Lower Your Overall Debt Amount: Debt settlement is based on the logic that if a creditor knows you are not in the position to pay back all of your debt, they may decide to write off the loss and take the next best deal. Proving financial hardship to your creditors often results in a lower debt amount for you to pay back.
  • Help You Avoid Bankruptcy: Bankruptcy should be a last resort, as filing for bankruptcy leads to a longer recovery period for your credit score and is documented on your public record. While settling your debt may see your credit taking a hit, it is nowhere near as much as that of bankruptcy.
  • Get Relief from Creditors and Collectors: By partnering with a debt settlement company that offers debt specialists to handle negotiations for you, the constant bombardment of phone calls from creditors will cease sooner, and you won’t have to deal with speaking to them.

Cons of Debt Settlement

  • You May End Up with Unforeseen Tax Payments: If you or the company you’ve hired successfully negotiate a debt settlement, the portion of your debt that has been forgiven may be considered taxable income, which you would owe taxes on.
  • It May Temporarily Hurt Your Credit: As negotiations are taking place between an individual or their representative and a creditor, it is common practice to stop making payments on your debts while you save up money for a lump-sum payment. If your creditors haven’t struck an agreement with you yet, these missed payments may be showing up as delinquent accounts on your credit reports. Once the accounts are settled and paid off, this will reflect positively in your credit report.
  • Your Creditors Are Not Obligated to Negotiate: There is no guarantee that a creditor will negotiate with you at all or is obligated to reach an agreement with you.

Debt Settlement is Right for Me If…

  • My bills and accounts are already or are on the brink of being delinquent
  • I am experiencing significant financial hardship, such as a divorce, unexpected medical expenses, or loss of a job
  • I have over $10,000 in debt
  • I am considering bankruptcy

Cash-Out Refinancing

What is Cash-Out Refinancing?

A cash-out refinance is an option when you are short on liquid cash but have high equity in your home. You can replace your existing home loan by refinancing a new mortgage for a larger amount. By borrowing more than what you currently owe, you now have access to additional funds that you can then use to pay off your debt.

Pros of Cash-Out Refinancing

  • Relatively Low Interest Rates: Given that it is your home that secures the loan, you can expect to enjoy relatively low interest rates when compared to personal loans or credit cards.
  • Longer Repayment Periods: Because you are replacing your existing mortgage with a new 15-year or 30-year loan, you can make payments over an extended period of time.
  • Large Loans: If your home has a high amount of equity, you may be able to be qualified for tens or hundreds of thousands of dollars through cash-out refinancing.

Cons of Cash-Out Refinancing

  • High Closing Costs: Taking out any mortgage loan requires substantial, unavoidable, up-front fees known as closing costs. Whether you choose to write a check covering the balance, take a higher interest rate, or roll them into your loan balance, you will always pay these closing costs.
  • Interest Costs: Any payments on your housing debt up until this point are effectively erased, and the clock is reset. This increases your lifetime interest costs.
  • Increased Risk of Foreclosure: Because this type of loan is a secured loan, an inability to repay could result in your home’s foreclosure.

Cash-Out Refinancing is Right for Me If…

  • I am a homeowner
  • My home has good equity
  • I have a large amount of high-interest debts to pay off
  • I have several debts from multiple creditors


What is Bankruptcy?

Bankruptcy is often thought of as taboo, but the bottom line is that it’s just like any other debt relief strategy—it can help you conquer your debt.

Depending on the type of bankruptcy you file (either Chapter 7 or Chapter 13), a bankruptcy trustee will help you sell your assets to pay off your creditors OR set up a repayment plan. Once your lenders have been paid, you can begin to rebuild your credit with a blank(ish) slate.

What’s the Difference Between a Chapter 7 and a Chapter 13 Bankruptcy?

Simply stated, Chapter 7 bankruptcy means you sell all of your non-exempt assets to pay off your debtors while Chapter 13 bankruptcy sees you establishing a repayment plan with your creditors. Your current financial situation will determine which type of bankruptcy you file for. You can read more about the differences between the two types of bankruptcy in greater detail here.

Pros of Bankruptcy

  • Get Out of Debt Quicker AND with Debt Forgiveness: With Chapter 7 bankruptcy, you can begin the process of starting over with a clean financial slate faster. In a matter of months, your debt is forgiven and you can begin to rebuild your finances.
  • Put an End to Harassment from Debt Collections: When you file for either type of bankruptcy, you immediately qualify for an “automatic stay” which prevents collections agencies from contacting you. This stay also delays action on wage garnishment, repossessions, and foreclosures.

Cons of Bankruptcy

  • You’ll Take a Major Blow to Your Credit Score: Unfortunately, your credit score pays the price for your newfound blank financial slate. Depending on the type of bankruptcy you file, it will remain on your credit report for seven to ten years, impacting your ability to get a credit card, finance an automobile, or even rent an apartment.
  • Discharges Can Be Revoked: Make sure you are as thorough as possible when submitting your bankruptcy. If a judge deems that you were “dishonest” in your filings (whether that means you didn’t properly disclose your assets or you filed fraudulent papers), he or she can choose to revoke your discharge. Your bankruptcy status can also be withdrawn if you receive any inheritance in the 180 days after you file. Having your bankruptcy revoked puts you back on the line for all discharged assets.

Bankruptcy is Right for Me If…

  • I have no source of income (most debt relief strategies require income) OR
  • My income isn’t enough to repay my debts beyond my household obligations
  • Debt settlement won’t work for me, or I am not qualified
  • I have over $15,000 in unsecured debt

By now, you should be able to get an idea of which debt relief option is the right course of action for your unique financial needs. However, if you need further assistance or would like to get more information, request a Free Debt Relief Evaluation through ACCS! Our debt specialists are here to listen and connect you to the right debt relief solution for you. Reach out to us today with no cost and no obligation!

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