Credit Card Debt Relief Programs: Should You Trust Them?

Credit card debt hit a record-breaking $1.12 trillion in 2024. As credit card users struggle to pay bills, delinquency is also growing: 9% of credit card balances were delinquent during the first quarter of 2024.

If your credit cards are maxed out, or you were late in making a payment, you may have received a letter from a company claiming it can forgive or reduce your credit card bill. While some third-party debt relief programs can definitely help you, not all of them are trustworthy.

How to know if a debt relief program is a scam

Debt relief companies are known for having their share of bad players that can take advantage of people who are already in dire straits. This is especially true among companies offering “debt management plans” (more on that below). 

The Federal Trade Commission recommends watching out for the following red flags:

❌ Does it guarantee to settle your debts or help you get out of debt quickly?

❌ Does it try to enroll you into a plan without assessing your financial situation?

❌ Does it ask for upfront fees before doing any work?

❌ Does it claim to offer help through a new government program you’ve never heard of?

❌ Does it tell you to stop communicating with your creditors without explaining potential risks?

❌ Does it promise to stop collection calls and lawsuits?

If a company or program does any of the above, proceed cautiously and do some research.

How to choose a trustworthy credit card debt relief program

Before you move forward with debt relief programs, you should make sure you’re working with a company that’s reputable. There are several ways to do this:

✔️ Check your state attorney general and local consumer protection agency for any complaints against the company.

✔️ If your state attorney general requires businesses to be licensed to work in your state, confirm the company you’re considering is properly licensed.

✔️ Read company reviews online to find out what past customers have experienced and if there are any red flags to watch out for.

✔️ Check the Better Business Bureau for accreditation information, ratings, reviews and complaints from past customers.

Different types of credit card debt relief programs

Credit card debt relief can come in many different forms, and each type of program works differently. Examples include:

Credit counseling

Credit counselors work with you to determine the source of your debt and suggest changes you can make in your finances. For example, they might help you find ways to spend less so you have more available funds to pay off debt and offer free educational courses and workshops. The costs of credit counseling agencies and their services vary.

Debt management plans

Some credit counseling agencies will set you up on a debt management plan. With a DMP, you make a single monthly payment to the credit counseling agency, which is used to pay all your creditors at once. Credit counselors who set up DMPs may also negotiate lower interest rates, lower monthly payments or both on your behalf, which could save you money in the long run. Though they don’t do anything you can’t do on your own, you’ll often pay an upfront or monthly fee for this service. Most debt management plans take 48 months or longer to complete.  

Debt settlement

Debt settlement is offered through third-party companies that will ask you to stop paying your bills and start making payments to a savings account in their name instead. The money is used to settle debts for less later on. However, debt settlement is never guaranteed, and these plans aren’t free. Most debt settlement companies charge consumers 15% to 25% of the debt amount settled by the time the process is complete. Also, there is a significant risk with not paying credit cards and other bills, including damaging your credit score. 

Debt consolidation loan

You could also get relief from credit card debt through a debt consolidation loan. Debt consolidation loans let you consolidate all your debts and make just one payment each month at a fixed interest rate. While debt consolidation loans tend to have much lower interest rates than credit cards, the best rates and loan terms are for those with good to excellent credit. You’ll want to compare the best personal loan companies online to understand the interest rates, monthly payment options and terms each lender offers, and move forward with a loan only if you can afford the new payment. 

Bankruptcy

If you have crushing amounts of debt, the last resort could be to declare bankruptcy. The two main types of personal bankruptcy are Chapter 13 and Chapter 7, each with its pros and cons. Chapter 7 bankruptcy involves the liquidation of all assets and wipes most debts off your record, whereas Chapter 13 bankruptcy lets you keep some of your assets and puts you on a payment plan so you can pay back some of your remaining debts. Both types of bankruptcy stay on your credit report for 10 years. 

Other ways to reduce your credit card debt

If you desperately need to get out of debt but don’t feel comfortable with the debt relief options listed above, you could try any of the following steps that don’t involve outside help.

Debt snowball method: With the debt snowball debt payoff method, you make only minimum payments toward all your debt (including credit card bills) each month except for the one bill that represents the smallest amount you owe. You’ll pay as much as you can toward that bill each month until it’s gone, at which point you’ll “snowball” that payment into the next smallest debt you owe. This debt payoff strategy helps you get rid of smaller debts first so you can focus on the bigger ones.

Debt avalanche: With the debt avalanche method, you make minimum payments toward all your bills (including credit card bills) each month except for the one bill with the highest interest rate. You’ll pay as much as you can toward that bill each month until it’s gone, at which point you’ll “avalanche” that payment into the debt with the next highest interest rate. This debt payoff strategy helps you save more money on interest as you pay down debt since you’re paying off high-interest debts at a faster rate.

Increase earnings: You can try either of the strategies above and still try to increase earnings to pay down debt faster. By picking up a side hustle, selling unused items you own or working more hours in your job, you can earn additional funds for debt repayment.

The bottom line

Credit card debt relief can look different depending on the program you choose. Not only should you consider which type best suits your needs, but you should also make sure you’re working with a reputable company.

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