3 Best Debt Relief Programs for Bad Credit (Dec. 2023)

The skies can look mighty gray when you have bad credit and fall behind on your debts. Once you start receiving dunning letters, phone calls from collection agencies, and threats of liens, garnishments, lawsuits, repossessions, or foreclosures, the time for serious action is past due.

Depending on the severity of the problem, you can try tightening your budget and perhaps consolidating your debt. However, if the only answer is to reduce your debt, consider the three debt relief programs for bad credit we rate in this review.

Programs | Options & Qualifications | FAQs

These three debt relief companies offer settlement programs to reduce your debt. They all offer other credit services as well, such as counseling and consolidation. Some can advise you on the protections of the bankruptcy court.

Any of our top-rated picks can help you select your best alternatives.

1. National Debt Relief

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• Requires $10,000 or more in credit card debt
• Free, no-obligation debt analysis
• Specializes in credit card and medical debt
• Also handles debt from personal loans, private student loans, lines of credit, and collections
• Does not handle IRS, utility, federal student loans or mortgage debt
• Long-term program to relieve debt over 24-48 month period
• See official site, terms, and details.

★★★★★

4.9

Overall Rating

Our Review »

Better Business Bureau	In Business Since	Free Consultation?	Reputation Score
A+	2009	Yes	9.5/10

National Debt Relief receives our top rank for those who need to relieve debts of $10,000 to $100,000 and up. It may require two to four years for the company to help you reduce your debt by around 30% (after accounting for fees).

The company advises that its clients reduce their debt by $6,200, on average. This assumes you stick with the program through the entire process, and your savings aren’t guaranteed. National Debt Relief works with most types of debt except mortgages, IRS liens, and federal student loans.

2. CuraDebt

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• 100% confidential, no-obligation consultation
• Specializes in unsecured debts over $10,000
• In business since 2000
• Options for debt settlement, consolidation, and tax debt
• Get a 100% free, personalized savings estimate from a debt professional
• See official site, terms, and details.

★★★★★

4.0

Overall Rating

Our Review »

Better Business Bureau	In Business Since	Free Consultation?	Reputation Score
(No Grade)	2000	Yes	9.0/10

CuraDebt works to reduce the indebtedness of consumers with unsecured debts of $10,000 or more. Since its formation in 2000, this company has assisted more than 180,000 clients with debt problems.

The company specializes in relieving debts from personal loans, credit cards, back taxes, medical bills, repossessions and collections, and business debts. However, it doesn’t work with secured debt, or government debt, past-due utility bills, and debts arising from legal action.

3. Freedom Debt Relief

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• Toll-free assessment: 1-855-299-9573
• Minimum $10,000 in debt required
• Learn about your debt relief options
• AFCC accredited member
• Resolve debts in as little as 24 to 48 months
• $5 Billion in debt resolved – #1 in America
• See official site, terms, and details.

★★★★★

3.9

Overall Rating

Our Review »

Better Business Bureau	In Business Since	Free Consultation?	Reputation Score
A+	2002	Yes	9.5/10

Freedom Debt Relief is a big player in the debt-relief industry, having helped more than 600,000 clients resolve over $10 billion in unsecured debt since 2002. The company doesn’t quantify the amount of debt you can expect to cut, it does seek savings of up to 50% on credit card debt, before fees of 15% to 25%.

The minimum debt amount the company works with is $7,500 stemming from credit cards, medical bills, personal loans, and other unsecured debt. As with the two other firms we’ve reviewed, Freedom Debt Relief offers a free, no-obligation consultation.

When you make a commitment to climb out of debt, you probably want to choose a method that is the most efficient, least costly, and the least harmful to your credit score over the long term. The three major alternatives at your disposal are debt consolidation, debt settlement, and bankruptcy.

If you already have bad credit, discharge of debt through settlement or bankruptcy can make your credit even worse, while consolidation may help you start to rebuild your credit sooner. However, consolidation may not be a realistic alternative.

Let’s explore how the three solutions stack up against each other.

Debt Consolidation

You consolidate debt by:

1. Establishing a new loan or credit account. This is the consolidation account.
2. Using the consolidation account to pay off existing debts.
3. Repaying the consolidation account.

Clearly, we must distinguish between the consolidation loan and the debts that get consolidated.

Sources of Consolidation Funds

You can fund debt consolidation using credit card balance transfers, personal loans, auto refinance loans, 401(k) loans, or home equity loans. Appropriate sources of personal loans include banks, credit unions, online lending networks, friends and family, and peer-to-peer platforms.

However, short-term loans, such as payday loans, credit card cash advances, and title loans are inappropriate funding sources. That’s because short-term loans fail to accomplish the objectives of consolidation, which require enough time to pay down your debt.

Payday loans are extremely expensive and charge exorbitant late fees. Title loans are also expensive and put you at risk of losing your vehicle if you miss a payment. Cash advances are expensive and, if you have bad credit, relatively limited.

While you can use secured or unsecured loans/credit to fund consolidation, you can’t consolidate every type of debt.

Debt You Can Consolidate

In general, you can consolidate the following types of debt:

• Cellphone bills
• Credit card debts
• Gas card debts
• Medical and hospital bills
• Personal loans not secured by your home or property
• Store card debts
• Student loans
• Utility bills

Notice that all of these debts are unsecured.

Debts You Cannot Consolidate

You generally can’t consolidate secured debt, nor certain types of unsecured debt, such as:

• 401(k) loans
• Back taxes and other IRS debts
• Home loans (mortgages, home equity loans, home equity lines of credit)
• Legal settlements
• Payday loans
• Vehicle and boat loans

These types of debts are harder to relieve. Some may be reduced through settlement negotiations, but others can result in liens, garnishments, and/or repossession of assets.

Credit Card Consolidation

If your debt stems from credit cards, you can consolidate your balances by obtaining a new card that offers an introductory 0% APR on balance transfers. You then transfer your existing card balances to the new card, usually paying a 3% fee per transfer.

After the transfer, you have the introductory period to pay down your new, consolidated balance without incurring additional interest. You do begin to pay interest once the introductory period ends, which could be anywhere from six to 18 months, depending on the card.

The minimum monthly payment on the consolidated balance may be less than the sum of the individual monthly payments before the consolidation. However, your goal is to pay down your debt, which requires more than minimum payments.

The key to successful credit card consolidation is not using your other credit cards until the process is complete. Don’t close out the other cards, however, because doing so will shorten your average account age and thus hurt your credit score.

Consolidating with a Secured Loan

Types of secured loans include home equity loans, home equity lines of credit, and auto refinancing loans. You use the equity in your home or car to borrow enough money to pay off your existing debts. You then repay the new loan over time.

On the plus side, secured loans are fairly easy to get, since they are collateralized by the underlying asset — your home or car. This is true even if you have bad credit. As a less-risky loan, its APR should be below that of the unsecured debts you consolidate.

However, you risk losing your collateral if you default on the loan. And, of course, these loans work only to the extent that you have equity in the asset. Typically, you can borrow no more than 80% to 90% of the equity value — the rest is a cushion in case the lender needs to foreclose on your home or repossess your car.

Consolidating with an Unsecured Loan

An unsecured loan is not collateralized, so the lender is depending on your creditworthiness. You may be able to get a personal loan with bad credit, but the chances aren’t great. And, even if you get one, it may not be large enough to consolidate your other debts.

Nonetheless, we regularly review lending networks and peer-to-peer lenders that specialize in bad credit loans, so they are definitely worth a try. These are usually recourse loans, meaning that the lender can sue you for your other assets if you default. Conversely, lenders of non-recourse loans cannot attack your assets (other than ones serving as collateral).

If you have a 401(k), you can borrow up to half your balance or $50,000, whichever is less. If your balance is between $10,000 and $20,000, you can borrow up to $10,000. You must repay the loan, with interest, within five years or treat the balance as a taxable withdrawal.

The goal of debt settlement is to reduce the amount you owe. It is a process in which a credit counselor for a debt relief company negotiates with each of your creditors, who are asked to write-off part of your debt.

The Debt Settlement Process

You must demonstrate financial hardship to qualify for debt settlement. Typically, the process has the following steps:

1. Engage a debt relief company to work on your behalf. The firm will work with you to develop an action plan.
2. Cease making payments to creditors.
3. The credit counselor creates an FDIC-insured savings account that you make lump sum and/or periodic payments into. This is the account from which your creditor will be repaid.
4. You continue to build your savings account balance, ignoring collection attempts.
5. After three to six months, the counselor contacts your creditors and negotiates settlement agreements on your behalf. These agreements waive late fees and reduce the account balance.
6. The creditor draws the negotiated amount from the savings account and closes out the debt.
7. The process is repeated for each creditor until all your debts have been settled.

The debt settlement company collects a fee for each settlement agreement you reach.

Types of Debt that Can Be Settled

Debt settlement may be available through a debt relief company. Certain types of debt, such as IRS levies and student loans, may be eligible for settlement through direct negotiation with the creditor.

Debt Relief Company Settlements

Debt settlement through a debt relief company is only available for certain types of debts, including:

• Business debts
• Collections or repossessions
• Credit cards
• Medical bills
• Secured debts with worthless collateral (i.e., a totaled car or a second mortgage on a foreclosed property).
• Unsecured loans, personal loans, or lines of credit

Each debt relief company determines the exact scope of the debt types it will handle.

IRS Tax Settlement

The IRS can make an Offer in Compromise to settle an outstanding tax debt for less than the full amount. To qualify, you must meet certain standards for income, expenses, assets, and your ability to pay. Certain debt relief companies specialize in tax settlements, but the ones in this review do not.

Student Loan Settlement

You may be able to settle federal or private student loans that are in default. Federal student loans offer settlement alternatives such as forbearance, deferment, forgiveness, and discharge, under various circumstances that include:

• Closed school
• Disability or death
• False certification of student eligibility
• Unauthorized payments
• Unpaid refunds
• Work-related loan forgiveness

Some debt relief companies will work on the settlement of private student loans, but typically do not deal with federal student loans.

Settlement of Child Support Arrearages

Most states have agencies that can arrange settlements of child support arrearages. The details vary with each state and can include forgiveness of owed interest and part of the principal amounts owed. You can contact the Office of Child Support Enforcement for more information.

Pros and Cons of Debt Settlement

On the plus side, settlements:

• Reduce the amount of money you owe.
• End collection activities.
• Can get you started on the road to recovering your credit standing.
• Help you avoid bankruptcy.

However, settlement drawbacks include:

• No assurance of agreements with creditors.
• Increased debt if negotiations fail after you cease payments.
• Fees apply, including those paid to debt settlement companies.
• Your credit score could suffer and the settlement will stay on your credit report for seven years.

While not ideal in all cases, debt settlement is frequently helpful to those who need substantial debt relief.

Bankruptcy is a legal proceeding in which a court restructures or wipes out your debt.

Chapter 7 bankruptcy is available only to low-income individuals. The court liquidates most of your assets and uses the proceeds to repay your unsecured debt, but secured creditors gain direct control of your assets that serve as collateral. Some non-collateral property is protected from creditors, including your home, car, clothing, and certain retirement accounts.

Chapter 13 bankruptcy reorganizes your debts, which you agree to repay. By adhering to the court-ordered repayment plan, you get to keep your assets. Typically, the plan requires you to repay less than the full amount owed. After completing the plan, any remaining unsecured debt will be discharged.

Debts Not Dischargeable through Bankruptcy

Certain types of debt cannot be discharged through bankruptcy, including those stemming from:

• Asset-backed debts (auto loans, mortgages, etc.)
• Back taxes
• Certain government-imposed obligations
• Debt from bad acts
• Domestic relations orders
• Most student loans

Bankruptcy is considered the last resort for debts you can’t repay.

Pros and Cons of Bankruptcy

Bankruptcy provides certain advantages:

• Reduces or eliminates your debts
• Provides an orderly process to work out your finances
• Can help control disruption to your life
• Protects you from collection agencies

However, bankruptcy has significant costs:

• Hurts your credit score
• Remains on your credit report for up to 10 years
• Lost access to credit cards and loans
• Not applicable to all debts

Debt relief companies may offer advice about bankruptcy and help you decide whether you should pursue it.

Bad credit and the need for debt relief usually go hand in hand. You can take certain steps on your own to help relieve your debt situation, but you may find it more effective to use a debt relief company.

Many folks start with debt consolidation. This has the advantage that it doesn’t further hurt your credit score. The downside is that your bad credit may hamper your ability to arrange a high enough credit limit or loan to consolidate all your debt.

In addition, your bad credit score will consign you to high-APR consolidation funding. Thus, consolidation will likely be more expensive in the long run without reducing any of your debt. Consolidation makes sense if it helps you actually repay your debt over time.

If consolidation won’t give you the results you need, you can turn to debt settlement or bankruptcy. Debt settlement, if successful, can reduce how much unsecured debt you owe. It typically takes up to five years to complete the settlement process.

National Debt Relief, CuraDebt, and Freedom Debt Relief are all leading providers of debt settlement and other debt relief services. They have the standing in the credit industry to negotiate on your behalf, and they don’t collect fees until they arrange a settlement.

Bankruptcy is the most drastic when it comes to debt relief. Relatively few folks qualify for Chapter 7 bankruptcy, in which much of your property is liquidated in return for debt discharge. You’ll more likely undergo Chapter 13, in which you must repay at least some of your outstanding debt.

Bankruptcy can hurt your credit score for up to 10 years and prevent you from obtaining new credit for several years. However, it may be your only alternative if you end up in a situation where you can’t pay your bills.

Consolidation can actually help improve your credit. If successful, all your creditors get paid and you have the opportunity to reduce your credit utilization ratio over time.

For consolidation to be most effective, you should keep your old accounts open but otherwise ignore them. If you add to your debt by reusing your consolidated accounts, you’ll be in even worse shape and your credit might suffer.

Debt settlement hurts your credit, but the damage will have already been done. That’s because you first default on your debt before entering into settlement negotiations. Defaults and settlement remain on your credit history for six to seven years.

In a way, settlement can be viewed as a positive response to default. After all, defaulted debt has been written off by creditors, meaning they don’t expect you to ever repay it. Settlement, however, allows you to repay at least some of your defaulted debt.

Your willingness to make at least partial repayment of your defaulted debts may improve your future access to credit. While derogatory items can remain on your credit report for seven years or longer, the negative impact begins to recede after a couple of years.

Therefore, the negative credit effects of debt settlement will slowly abate over time. By reducing your debt, settlement allows you to start improving your credit condition sooner, something that may eventually help you recover your credit standing.

National Debt Relief earned the highest rating among the three debt relief companies in this review. It discloses the average savings it has earned its customers and the amount of time necessary to achieve those savings.

“This process was relatively easy. No one wants to have to call and ask help but once you get past that and call, they don’t treat you like you’re less of a person for getting yourself into this position. I greatly appreciated that!” — Trustpilot reviewer

CuraDebt points out how it aggressively pursues violations of debt collection laws that can result in cash awards and even dismissal of debts. The company promises a smooth process delivered by experienced credit counselors.

“My accounts are current, but my hours at work were recently cut. I was barely able to make the minimum payments before. Now it will be impossible. I was glad I was able to speak with My CuraDebt Counselor, and create a plan that will pay off my debt in a reasonable amount of time, instead of paying minimum payments for 20 years.” — Shopper Approved reviewer

You may prefer Freedom Debt Relief if your debt primarily derives from credit cards. It states that it can settle your credit card debt for as little as 50 cents on the dollar, sometimes even less. The company has been operating for more than 15 years and has received excellent reviews on Trustpilot.

“I received knowledgeable information and all my needs were met by a very qualified professional.” — Trustpilot reviewer

Ultimately, the choice of which services you engage from a debt relief company will hinge upon your exact situation.

While you can pursue consolidation on your own, using a debt relief company may make the process easier. In addition, the company may be able to reduce your interest rates, decrease your minimum payments, and/or remove late fees during the consolidation process.

If you need to reduce your overall unsecured debt, you can use a debt relief company to negotiate settlements on your behalf. Unlike consolidation, settlements are hard to achieve without professional help. You should always ensure that the debt relief company won’t charge you fees until it completes the settlement of an account.

The three debt relief programs for bad credit reviewed here can help you regain control of your finances when your debt becomes hard to manage. All offer services for credit counseling, consolidation, and settlement.

Debt relief is a big step, so you must take care to engage a company that has a track record for integrity and effectiveness. The three companies reviewed here all fit the bill.