What You Need to Know About Debt Relief Plans

Americans are no strangers to debt. In fact, according to a report from Northwestern Mutual, the average American carries $38,000 in personal debt (not including mortgage debt). And with the pandemic causing economic turmoil for so many people, that number is likely only going to increase in the coming months.


If you're struggling to make ends meet and are considering a debt relief plan, there are a few things you should keep in mind.


In this blog post, we'll give you an overview of what debt relief plans are and how they work.


We'll also provide some tips on what to look for when choosing a debt relief plan so that you can make the best decision for your financial future.

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What is a Debt Relief Plan?

A debt relief plan is an arrangement between a borrower and a lender that allows the borrower to repay their debt over time at a reduced interest rate or monthly payment. Debt relief plans can be used for both secured and unsecured debts, like credit cards, medical bills, student loans, and more.

There are several different types of debt relief plans available, but not all of them will be right for everyone. It's important to do your research and speak with a financial advisor to determine which type of plan will work best for your unique situation. Some common types of debt relief plans include:

Debt management plans

A debt management plan (DMP) is an arrangement between you and your creditors where you agree to make monthly payments towards your debts. Your monthly payments will be based on what you can afford to pay after covering your basic living expenses.

Debt settlement

Debt settlement is an agreement between you and your creditors where you agree to pay a lump sum payment that is less than the full amount you owe. Once the payment is made, your creditor will agree to forgive the rest of the debt.

Bankruptcy

Bankruptcy is a legal process that allows individuals or businesses to get out from under unmanageable levels of debt. There are several different types of bankruptcy, but the most common are Chapter 7 and Chapter 13 bankruptcies.

Loan modification

A loan modification is an agreement between you and your lender that changes the terms of your loan agreement. This could include extending the length of the loan, reducing the interest rate, or changing the monthly payment amount.

Debt consolidation loans

A debt consolidation loan is a new loan that pays off multiple smaller debts. The goal of consolidating your debts into one loan is to get a lower interest rate so that you can save money on interest charges and repay your debts more quickly.

Tips for Choosing a Debt Relief Plan

Now that you know a little more about some of the different types of debt relief plans available, here are some tips to help you choose the right one for your situation:


Enrolling in a debt relief plan can be a helpful way to manage overwhelming levels of debt. However, it's important to do your research before enrolling in any program so that you understand all of your options and choose the best plan for your unique circumstances.


Speak with a financial advisor and understand your goals before making any decisions so that you can make the best choice for your financial future.

Speak with a financial advisor

A financial advisor can help you understand all of your options and figure out which type of plan will work best for your unique circumstances. If you don't have a financial advisor, many banks and credit unions offer free or low-cost financial counseling services.

Understand your goals

What are you hoping to achieve by enrolling in a debt relief plan? Do you want lower monthly payments? A lower interest rate? To pay off your debts more quickly? Knowing your goals ahead of time will help ensure that you choose a plan that meets your needs.

Compare fees

Some companies charge upfront fees for enrolling in their program, while others charge ongoing monthly fees. Make sure to compare these fees before making any decisions so that you know how much each option will cost you in the long run.