What Are the Different Types of Consumer Debt Relief?

There are several options available for consumer debt relief, some of which are riskier than others. Credit counseling can help people learn how to handle their debt. Debt management programs allow a debtor to work with a company to lower debt, while debt settlement can reduce the amount of debt owed. Bankruptcy is an option that can erase certain debts from consumers' records, giving them a fresh start.

Credit counseling can help consumers get out of debt and avoid going into debt again. In this type of consumer debt relief, a professional can meet with the consumer in person or on the phone to help develop a strategy to pay off debt. A credit counseling professional also can help with the creation of a budget that consumers can learn to follow. These professionals also can provide access to educational resources that will help consumers learn more about handling their debt.

Debt consolidation is a type of consumer debt relief that combines debts. A consumer will owe the same amount, but the debt will be combined so only one payment is made every month. This allows a consumer to gradually pay down his or her debt. Consolidation loans are not guaranteed; there is an application process that takes into consideration monthly income, the kind of debt the consumer has and credit history. A big risk is taken when this method of consumer debt relief is used, because a person's home is often used as collateral.

Debt management companies offer another kind of consumer debt relief. These companies consider debts, interest rates, the terms of the consumer's accounts, and various other factors to create a plan. Every month, payment is made to the company, which then pays the debtor's creditors. Creditors may work with debtors to lower fees or interest rates. The plan can take four years or more to complete and using or applying for additional credit is not allowed while in the program.

Debt settlement is an option for those looking for consumer debt relief who cannot handle their debt alone. This option can stop bill collectors from calling. Professionals can work with creditors on debt reduction and, while the amount the creditor will settle for will be less than the full amount owed, it will have to be paid immediately. There can be a negative impact on credit scores, because payment is made to the company handling the deal instead of directly to the creditors, and creditors do not have to accept the agreement. Creditors can still sue the debtor for full payment, and the IRS may consider any forgiven debt as taxable income.

Bankruptcy can grant total debt forgiveness. It is the last resort for those who need consumer debt relief. Expert advice and counseling is required before filing in U.S. bankruptcy court. The court will discharge certain debts, such as medical bills, meaning these do not have to be paid. The bankruptcy will be listed on the debtor's credit report for 10 years, making it potentially difficult to get new credit, jobs, life insurance or a home.