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CBS News
a day ago
- Business
- CBS News
Which is better now: A debt relief program or bankruptcy? Experts weigh in
Many people struggle with debt. And thanks to high interest rates, rising costs of living, and other challenging financial conditions, that debt can be particularly hard to get out of these days. "It's always tough when it comes to getting out of debt," says Wheeler Pulliam, a certified financial planner and financial consultant at Xponify Financial. "It's even tougher to try and figure out the right way to go about it." If you're having trouble getting out from under debt, debt relief or even bankruptcy may be able to help, but they aren't for everyone. Here's what to know about these options and when one might be the right move for you. Find out what debt relief options are available to help you now. Debt relief can come in many forms. First, there's debt consolidation, in which you take out a loan with a lower interest rate, and then use that to pay off all your debts — rolling them all into one payment. "These types of programs make the most sense for normal, everyday Americans who have accumulated a lot of different debt over time through credit cards and the like," Pulliam says. "They help simplify what the debt is and how to best pay it off, usually by just having to make one payment a month instead of trying to manage several different ones." There are also debt management plans, which put the actual payment of your debts in the hands of a debt relief company or credit professional. "It offers a structured repayment plan, often facilitated through credit counseling agencies," says Jen Leisey, product manager of consumer lending at Georgia's Own Credit Union. "The agencies contact creditors on the consumer's behalf to possibly reduce interest rates, waive any accumulated fees, or adjust terms. Once new repayment terms have been established with the individual creditors, the agency will collect a single, monthly payment from the consumer and distribute the funds to the creditors under the newly established terms." Debt settlement is another option, usually for those dealing with particularly large debts. This is when you negotiate with your creditors to pay off your debts with a lump-sum payment that's less than what you actually owe. The big downsides of debt relief are that it comes with fees — usually a percentage of what the debt relief company saved you or a flat fee for services — and it can take a while. According to Leisey, a debt management plan can take up to five years to complete. Your credit can also take a hit, particularly with debt settlement. "This option would have the greatest negative impact on the consumer's credit score," Leisey says. "Settlement companies may also charge 15% to 20% of the total debt for negotiation and servicing of the settlement." Learn more about how the right debt relief strategy could help you today. Bankruptcy is another option if you have lots of debt, and, like debt relief, there are multiple options. First, there's Chapter 7. This "is the most common for individuals who don't make a lot of money but have a large amount of debt," Pulliam says. "Typically, they don't have a realistic way of paying it off. It wipes out most of your debt, with certain exceptions, and allows you to start over, so to speak." With Chapter 7 bankruptcy, you get most of your debts wiped clean, but must sell off certain assets in the process — things like non-essential vehicles, property or collectibles. With Chapter 13, you will only get to discharge some debts, though you won't have to sell any assets. You will also need to get on a court-approved repayment plan that lasts three to five years. "Chapter 13 is the type of bankruptcy you usually see businesses go through," Pulliam says. "It has to do more with reorganizing your debt, than total debt forgiveness, allowing for recovery over time." There are two big drawbacks to choosing bankruptcy, though: The fees and the credit hit it comes with. "What most people don't realize is that it can cost thousands of dollars to go bankrupt," says Howard Dvorkin, chairman of "It's a court proceeding, and you need to hire a lawyer and pay filing fees." Bankruptcy can also stay on your credit report for seven to 10 years. That could impact your ability to get future loans, credit cards and other financial products during that time. Both bankruptcy and debt relief can help you tackle your debt problems, but you'll need to decide which is best for your unique situation. If you want a faster solution, bankruptcy is typically the better choice, Wheeler says, with the entire process taking only about three to six months. The tradeoff is the credit impact. "It makes it harder to secure loans in the future, especially at any decent rate," Wheeler says. Given today's already-high interest rates, this is a notable drawback to consider, particularly if you think you may need to borrow money at any point in the near future. Debt relief will usually have a lighter credit impact (or could even help your credit, in the case of a debt management plan, but it takes a long time and comes with fees. "You should consider your short- and long-term goals, the potential costs and impact on your credit score offered by each option, and the potential changes to your quality of life," Leisey says. "Are reduced collection calls and anxiety related to your finances in exchange for a reduction in available credit options and increased interest rates worth it to you? Do you have the discipline to complete a debt management plan or Chapter 13 repayment plan, or do you need the 'out' provided through debt settlement or Chapter 7?" This sort of "realistic self-assessment" can help you come to the right solution, but if you're still not sure, talk to a credit counselor, debt relief professional or financial advisor. They'll help you determine what's best for your unique situation. As Dvorkin advises, "Don't go it alone." Whether you pursue debt relief or file for bankruptcy, the path out of debt is rarely easy, but it is possible with the right strategy and support. By weighing the pros, cons and long-term implications of each option, and getting expert guidance when needed, you can make a confident decision that puts you on a stronger financial footing.
CBS News
07-07-2025
- Business
- CBS News
How much can you save with a debt management program now?
We may receive commissions from some links to products on this page. Promotions are subject to availability and retailer terms. Enrolling in a debt management program could result in substantial savings for the right type of cardholder. Getty Images Americans are carrying more credit card debt than ever, and with average credit card interest rates now topping 21%, even relatively small balances can quickly become a big drain on your finances. Part of the issue is that even when you're diligent about making at least the minimum payments, today's high rates mean that most of most of that payment goes toward the interest charges instead of the balance itself, allowing the interest charges to compound and the balance to snowball quickly. But as the ongoing issues with sticky inflation and rising living costs continue to eat into your budget, it's important to find a way out of credit card debt as soon as possible. There are various ways to do that, but for many cardholders, debt management programs offer a practical way forward. These programs, offered through credit counseling agencies, work with your creditors to try and lower your interest rates, eliminate certain fees and roll multiple credit card payments into one manageable monthly bill. Unlike debt settlement, debt management won't reduce your total balance, but this type of program can make repayment more affordable and predictable. How much can you actually save with a debt management program, though? While the numbers vary depending on your situation, for many, the potential savings are substantial, and, in some cases, they can be enough to shave years off the repayment timeline. Learn how to take advantage of your debt relief options today. How much can you save with a debt management program now? The savings potential from a debt management program depends heavily on your current situation, but the numbers can be substantial. Overall, the monthly payment reduction varies widely but generally lowers your monthly card payments by between 30% and 50% on average. This happens through the combination of lower interest rates, waived fees and extended repayment terms. Many debt management program participants see their interest rates reduced significantly. In 2024, for example, the average credit card APR dropped to 6.8% for those enrolled in debt management programs, which is drastically lower than today's average card rate. That type of rate reduction alone can save thousands of dollars over the life of your debt. Credit counseling agencies will also typically negotiate to have late fees, over-limit charges and other penalties waived for program participants. Given that late fees can run $35 to $40 per occurrence — with an average of $32 per fee — and over-limit fees can add another $35 or so monthly, these savings add up quickly, especially for someone juggling multiple cards. The credit score impact also translates to long-term savings. While enrolling in a debt management program may initially cause a slight dip in your credit score, consistently making on-time payments through the program often leads to score improvements over time. This means better rates on future loans, lower insurance premiums and increased access to credit when you need it. Note, though, that there are program fees to consider as part of the equation. However, these fees are typically relatively modest, usually ranging from $25 to $75 monthly, depending on your state and the complexity of your situation. Many agencies also charge a one-time setup fee of $50 to $100, but when weighed against the potential savings, these costs typically represent a small fraction of what you'll save overall. Learn how to get rid of your high-rate card debt for less now. What else to know about debt management programs before enrolling While the potential savings you can get with a debt management program are compelling, it's important to consider the full picture before enrolling. Here's what else to know about this type of debt relief program before you enroll: There's a monthly payment commitment. Debt management programs require you to make a single, fixed monthly payment to the credit counseling agency, which then distributes the funds to your creditors. This payment is often lower than what you were paying collectively before, but it's still a commitment you'll need to make consistently for three to five years, as missing payments could jeopardize the program benefits. You may have to close your credit cards. When you enroll in a debt management program, most creditors will require you to close the accounts included in the program. This can impact your credit score in the short term by lowering your available credit and affecting your credit mix. However, as you pay down debt, your score may improve. Debt management isn't the right solution for everyone. Debt management programs work best for those with steady income, enough cash flow to make the required payments and those with a manageable amount of debt. If your financial situation is too strained, other debt relief solutions, like debt settlement or even bankruptcy, might be more appropriate. The bottom line Debt management programs offer a realistic path to significant savings for many cardholders who are struggling with high-rate credit card debt right now. While the exact amount you'll save depends on your specific situation, most debt management participants see meaningful reductions in both monthly payments and total interest over time. And, the current economic environment makes this a particularly opportune time to explore your debt management options. However, you'll need to be committed to changing the spending habits that led to you accumulating the debt in the first place, especially if you want the savings you achieve to set the foundation for a more secure financial future.
CBS News
26-06-2025
- Business
- CBS News
6 debt management program warning signs borrowers should know
We may receive commissions from some links to products on this page. Promotions are subject to availability and retailer terms. Not all debt management programs are legitimate, and choosing the wrong one could lead to serious damage for your finances. JensIf debt collectors are calling you daily but you can't afford to pay off what you owe, the idea of enrolling in a debt management program can be pretty tempting. After all, these programs claim to help reduce your debt and eliminate the annoying (and often stressful) communications from creditors and debt collectors. Their messaging is everywhere, too — from radio ads during your morning commute to pop-ups while you're browsing online and even direct mail pieces that outline exactly how much you owe. And, in reality, many of the credit counseling companies that offer debt management programs can genuinely help you get back on track financially. Enrolling in a legitimate debt management program has helped millions of Americans negotiate with creditors to reduce interest rates and fees and create realistic payment plans. But while there are many honest companies trying to help, there are also some that are looking to exploit people who are already struggling, and in many cases, the predatory companies sound exactly like the legitimate ones. When you're overwhelmed by debt, it's natural to want immediate relief, but rushing into the wrong program can make your situation dramatically worse. So, to help you make the best decision for your finances, it helps to know the warning signs to watch for. Find out what strategies you can use to get rid of your high-rate debt now. 6 warning signs to look for when choosing a debt management program The following red flags could signal that the debt management program you're considering may not be the best choice for you: They guarantee results or instant debt relief If a debt relief program promises to slash your debt in half or erase it altogether with no consequences, it's time to walk away. A reputable debt management program will never guarantee specific outcomes because every creditor is different, and not all will agree to reduce your interest rate or waive your fees. Plus, true debt relief takes time. If someone claims they can make your debt disappear overnight, they're either misleading you or selling a program that's likely to hurt your credit or lead to default. Ask a debt relief expert about the options available to you today. They ask for payment upfront Federal law prohibits both credit counseling and debt settlement companies from charging upfront fees before services are provided. So if you're being asked to pay a large sum before any real help kicks in, that's a serious warning sign to take notice of. Legitimate debt management plans might include modest setup or monthly maintenance fees, but those are typically rolled into your monthly payment, and they should be clearly disclosed and reasonable. While it varies, the fees for debt management programs are usually under $75 to start and around $25 monthly. They dodge questions or won't explain the process Transparency matters. If a representative won't walk you through how their debt management program works, what it will cost, how long it will take and what happens if you miss a payment, that's a big problem. Any trustworthy credit counselor should be more than willing to explain the details, including how your payments are distributed to creditors and what happens if one of your creditors refuses to participate in the plan. They don't review your full financial situation A real debt management plan provides a tailored, not a blanketed, solution. So, before recommending anything, a legitimate credit counselor will take a detailed look at your income, expenses, debts and financial goals. If a program is pitched to you without this step — especially during a high-pressure sales call — it's probably not focused on helping you. It's more likely to be geared toward making money off your stress. There's no mention of the credit score impact Debt management programs can affect your credit, but not in the same way debt settlement or bankruptcy might. If a company says your credit score won't be impacted at all, though, that's probably misleading. You may see a temporary dip early on due to account closures or new payment structures, but responsible participation in a debt management program typically improves your score over time. A trustworthy program will be honest about this from the start. They push you away from other options In some cases, a debt management plan really is the best option. But in other cases, strategies like a balance transfer card, a debt consolidation loan or even bankruptcy could make more financial sense. Any credit counseling company that discourages you from exploring alternatives or suggests theirs is the only "safe" or "legal" way to get out of debt is showing its hand. Real financial guidance considers all the tools in the toolbox, not just the ones that generate fees. The bottom line Debt management programs can be a lifeline for people overwhelmed by high-interest credit card debt, but only if the program is legitimate and tailored to your needs. The wrong program could leave you deeper in debt, with damaged credit and fewer options. So before you commit, take the time to research the agency, read reviews, verify credentials and ask questions. A trustworthy program won't just promise relief. It will help you build a realistic, sustainable path toward financial stability.
CBS News
10-06-2025
- Business
- CBS News
Can debt relief help with unpaid medical bills? What experts say
We may receive commissions from some links to products on this page. Promotions are subject to availability and retailer terms. There are multiple debt relief (and DIY) options that can help you tackle your unpaid medical bills. Getty Images Despite recent efforts toward medical debt reform, many Americans still deal with piles of medical bills. A 2024 analysis from Peterson-KFF shows that about 20 million adults — nearly one in 12 — have unpaid medical debt. Around 14 million of those owe at least $1,000, while 3 million owe $10,000 or more. "Most people don't worry about medical bills — until they do," says James Lambridis, CEO of debt relief platform DebtMD. "Medical bills usually come without warning, and they're often much more expensive than expected." Compound these balances with other challenging factors like stubborn inflation, high interest rates, and economic policy concerns, and consumers are feeling the pressure to get out from under their medical debts. For some, debt relief strategies may be able to help. Are you one of the millions of Americans looking to tackle medical debt? We asked some experts about your debt relief options. Start tackling your medical debt here now. Can debt relief help with unpaid medical bills? If you're dealing with medical debt, there are several debt relief options you might explore. These include: Credit counseling The first option you might consider is credit counseling. Credit counselors can help you "Create a budget, prioritize payments, and can potentially assist with other high-interest debt to make the medical debt more affordable," says Thomas Nitzsche, a financial educator and vice president of public relations at Money Management International, a nonprofit credit counseling agency. According to Nitzsche, about one in five of the company's customers come to them with medical debts. "Credit counseling is highly recommended, especially when debt feels overwhelming," says Tayri Martinez-Orza, financial wellness expert and quality assurance expert at GreenPath Financial Wellness, a nonprofit financial counseling service. "It provides a fresh perspective and support by reviewing all of their debts — as well as their income and expenses — to help identify the most affordable and realistic repayment plan." Best of all? It's typically free. "A counselor gives you an in-depth debt analysis over the phone," says Howard Dvorkin, chairman of "There's no obligation, and you hang up knowing all your options and — most importantly — creating an accurate monthly budget." Learn more about your credit counseling options here. Debt settlement Settlement may also be an option. This is when your debt relief company negotiates with your creditor (in this case, usually the hospital or doctor) to settle your debt for less than what you owe. You'll still need to make a payment, but it can often be significantly less than what you owe. Settlement is more likely to be successful if you owe a large amount and can prove you have a financial hardship. In this case, it would benefit the creditor more to get some money from your account rather than none at all. "Debt settlement is a viable option for individuals with unsecured debt exceeding $7,500, — including medical debt or medical debt placed on a credit card," says Natalia Brown, chief compliance officer at National Debt Relief. Debt Management Plan (DMP) Debt management plans could be an option, too, especially if medical debts aren't the only debts you're dealing with. With a DMP, your debt relief provider handles repayment of all your debts on your behalf. You only make one flat payment to them each month, and they focus on putting those funds toward paying down your debts most efficiently. Explore other strategies Beyond debt relief, other strategies can help you tackle medical debt, too, experts say. First, you can negotiate. "Your best option is to simply ask to pay less," Dvorkin says. "It sounds silly, but sometimes you shave dollars off your bill just by calling your healthcare provider and calmly explaining you can't afford to pay everything you owe right now. Sometimes, they'll ask what you can afford, so have a number in mind." You can also ask about hardship options, financial assistance, or in-house payment plans, which could reduce your costs or help you spread them out over a longer period of time. "Many hospitals offer financial assistance to help people burdened with medical care," Lambridis says. "Check to see if you meet their requirements to qualify. Even if you don't, your hospital may be able to put you on a more convenient payment plan." Finally, always double-check your bills. Medical coding errors are common, and depending on your insurance coverage, they could cost you quite a bit. "After receiving your bill, check to see if it's accurate," Lambridis says. "Look for overcharges, duplicate billing, or charges on services that you didn't receive. Medical bills can be difficult to understand. If you find yourself confused, contact your hospital's billing office." You can also speak to a medical billing advocate. They can help you decipher medical bills and ensure your charges match the services you actually received — and that your insurance was correctly applied to those charges. Don't use credit cards or loans (and don't wait) Whatever you do, try to avoid using credit cards or loans to pay off medical debt. Thanks to recent credit reporting changes, failing to repay medical bills should not have an adverse effect on your credit — but not paying credit cards or loans will. Additionally, medical providers are typically slower to send debts to collections, as it takes a while for billing and insurance payments to be sorted out. This could give you more time to pay off your bills, especially with a payment plan. Finally, credit cards and loans can come with high rates. The current average rate on a credit card is over 21%. "Placing medical debt on credit cards can be less effective, especially in a high-interest environment," Brown says. "Doing this often leads to even more expensive balances since interest can accrue on credit cards if the full balance isn't paid monthly."
Yahoo
08-06-2025
- Business
- Yahoo
How do debt relief programs work?
Debt relief typically takes one of three forms: debt settlement, consolidation and management. Working with a debt relief company can result in less debt or a faster payoff — but there are often hefty fees, often up to 25 percent of the debt enrolled, attached to the services. Working with a debt relief company also often results in credit damage due to stopping payments during negotiations. Not every debt relief company is legit, so be prepared to research any company you consider. If you're struggling to pay off your debt and at risk of defaulting, a debt relief company may be able to provide assistance. Debt relief can come in a few forms, including self-driven ones, but a credit counselor or debt relief company can help you tackle the process. However, you'll pay a fee for a debt relief company's services. Debt relief companies are for-profit institutions that help you manage and pay down your debts. Depending on the company and what services are offered, they may work with creditors to help you get out of debt for less than what you originally owed. Most debt relief companies charge a hefty percentage of your discharged debt as a fee for their services. Each company offers different services. Some of the most common debt relief options include debt consolidation, debt settlement, credit counseling and debt management. Debt relief companies exist to help consumers lower their debt or better manage their repayments — for a fee. Most relief companies require an initial consultation to determine eligibility and to decide which method is best for you. However, it's important to walk into the process prepared by knowing all your options. Often, companies ask you to stop paying your debts to give them leverage to negotiate with your creditors and get parts of your debts settled. Then, they help you build a plan to repay your remaining balance. It is illegal to charge an upfront fee for debt settlement services. These fees should only be charged once your debts have been settled or resolved. More than that, if any business guarantees it can settle your debt, take your business elsewhere. This is a sign that the organization may be a debt relief scam. Or, you may instead opt to get a debt relief company's advice on how to manage your debts to avoid missing payments and pay them off faster. However, it's recommended you seek a nonprofit credit counselor for that kind of service. They typically charge lower rates and will not try to sell you additional services. Debt relief programs and debt consolidation Some debt relief programs will have the option to consolidate your debt. Debt consolidation can save you hundreds or even thousands of dollars in interest. Working with a debt relief program is just one way to explore your debt consolidation options. You can also explore self-driven options. Certification, fees and repayment time are the three main factors to prioritize when comparing debt relief companies. Certification: Any debt relief company should be backed by the National Foundation for Credit Counseling and the Financial Counseling Association of America. If the company lacks these certifications, you'll want to take your business elsewhere. Fees charged: Most debt relief companies will charge a fee between 15 percent and 25 percent of the total debt enrolled for settlement. Companies may also charge fees for opening and managing the savings account required to make payments. Repayment timeline: It typically takes between two and four years to complete a debt settlement program. This is based on the total amount of debt and creditors you have. Check the website to make sure the predicted timeline matches your needs. While debt relief can provide a path to taking control of your finances, there are also drawbacks to consider when taking this step, including: Impact on your credit score: The debt relief process may require that you stop paying your creditors for a period of time to better negotiate with creditors. During this time, your credit score will take a hit for lack of payment. Fees: Some debt relief companies charge fees, but these fees should only be charged once your case is settled. Look for a nonprofit counselor to potentially avoid these. Scams: There are scam companies working in the debt relief industry that may charge you money without actually helping to resolve your debt. Increased debt: While you stop paying your bills during the negotiation process, your credit cards or other debts could incur late fees and end up increasing your debt. In addition, any settlement fees will be added to the overall amount you owe. There also may be tax ramifications associated with forgiven debts. If you owe $10,000 on a credit card and that debt is reduced during settlement to $5,000, then the IRS may consider the forgiven $5,000 taxable income. Debt relief may be a good option for those facing potential default or bankruptcy. Just make sure you vet the company carefully to weed out the red flags, like upfront fees or settlement guarantees. And remember that some debt relief company services come with inherent risks to your credit score. If you ask the company to negotiate a debt settlement, you'll take a credit score hit when you stop taking payments — whether the creditor agrees to work with the relief company. Do debt relief companies charge fees? Yes. Debt relief companies charge fees in exchange for their services. The amount you're charged depends on the company you work with and the relief method you choose. Keep in mind that legitimate companies should never ask you to pay fees upfront — if you're asked to provide this, it's likely a scam. How long will debt relief affect your credit score? Working with a relief company will typically result in an immediate negative impact on your credit score. The degree to which your score drops depends on the relief method you choose and whether your creditors decide to report it. Is debt relief good or bad? In most situations, debt relief isn't something that will be immediately good for your finances. For one, it's often a costly undertaking due to the fees charged by the companies. It also has negative impacts on your credit score. Even as you rebuild your credit score, the forgiven debt will linger up to seven years on your report. But in some situations, it may be the only way to avoid bankruptcy. When considering whether to pursue debt settlement, you should also look into credit counseling from a nonprofit agency. How do I qualify for debt relief? Consumers who have a qualifying type and amount of delinquent debt can generally qualify for debt relief. However, each company has different approval and minimum debt criteria.
