Find The Best Insurance
We make it easy to compare and buy insurance.LEARN MORE
While the government does not sponsor debt relief programs, it aims to protect the financial safety of consumers and offers other types of financial assistance.
If you’re overburdened by debt, you may have been told to seek “government debt relief programs”, but to the contrary, such a program does not exist. The US government does not sponsor any type of assistance with debt in the form of debt relief (also known as settlement or adjustment), debt consolidation, or grants specifically geared toward debt. We’ll discuss what the government does offer, and how else you can seek debt relief or debt consolidation.
In this article:
Debt relief most commonly refers to debt settlement, or the process of negotiating with your lender to settle your debt for less than what you owe. To settle a debt means you’ve decided to pay less than the entire balance.
Whether it’s credit card debt, loans, or medical bills, settling your debt has huge implications on your credit history. Your credit score will go down and your credit report will carry the mark of “settled in full” for seven years.
To settle a debt, you can negotiate with your lenders on your own or use a debt settlement company. Even when debt settlement companies are not a scam, they might not pose the best deal financially speaking and can even leave you further in debt.
For-profit companies (like National Debt Relief and Freedom Debt Relief) can charge fees for their services and prove to be time-consuming efforts — debt settlement can often take years.
It’s also likely that only a portion and not all of your debt will be settled. In the meantime, your credit will suffer from all the missed payments while the settlement takes place. Exercise caution and consider the consequences of using a debt settlement company.
Debt consolidation is the process of combining all your various debt into one monthly payment. This is done by applying for a new loan to pay back your old ones. You’ll use the money to repay your lenders and creditors on your own, or in some cases, the new loan provider will make the repayments directly for you.
Unlike debt settlement, debt consolidation does not automatically have a negative impact on your credit. In fact you have a chance to build or improve your credit score, the way you would with any other loan. However, debt consolidation loans also have the same origination fees as standard loans, and if you have bad credit, you may not qualify for a loan with an lower interest rate.
While the government does not sponsor debt relief programs, it does aim to protect the financial safety of consumers and offer other types of financial assistance.
The Federal Trade Commission regulates debt collection agencies and debt settlement companies, which are banned from charging fees in advance for their services.
You can also file a complaint with the Consumer Financial Protection Bureau if you suspect unfair treatment by a bank, lender, or debt collection agency.
Veterans and members of the military can qualify for reduced interest rate on credit card debt and mortgage payments and other benefits under the Servicemembers Civil Relief Act
If you have low to moderate income, you can obtain an FHA-backed mortgage issued by an approved lender that has lower down payments than conventional loans.
The government does offer certain forms of debt forgiveness, if the debt is owed to the government instead of a private company. The IRS might relieve you of your tax debt and the Department of Education might cancel, forgive, or discharge your federal student loans under certain circumstances. The government does not sponsor direct forgiveness of medical debt or mortgages.
Read more about student loan forgiveness.
It’s also important to remember that the government considers forgiven debt to be a source of income, so you may be obligated to pay taxes.
You can deduct certain types of interest from your taxable income. While this is exactly not debt relief, it will reduce how much of your income is taxed, leaving you with more money to put toward paying down your debt. Mortgage interest, student loan interest, and medical payments that exceed 7.5% of your adjusted gross income are all tax-deductible.
Policygenius' partner Fiona lets you compare savings accounts to find the highest APYs in the industry.
The government suggests that you seek counseling from trusted sources accredited with one of the following organizations:
Credit counseling services are offered at low or no cost at credit unions, nonprofits, and religious organizations. They offer financial education and counseling on a variety of topics including:
Policygenius’ editorial content is not written by a certified financial planner or advisor. It’s intended for informational purposes only and should not be considered legal, financial, or investment advice. Consult a professional to learn what financial products are right for you.
This post contains references to products or services from one or more of Policygenius' advertisers or partners. While these codes earn us a small fee at no additional cost to you, they do not influence editorial content and we only refer products we love.
Was this article helpful?
Security you can trust
Yes, we have to include some legalese down here. Read it larger on our legal page. Policygenius Inc. (“Policygenius”) is a licensed independent insurance broker. Policygenius does not underwrite any insurance policy described on this website. The information provided on this site has been developed by Policygenius for general informational and educational purposes. We do our best efforts to ensure that this information is up-to-date and accurate. Any insurance policy premium quotes or ranges displayed are non-binding. The final insurance policy premium for any policy is determined by the underwriting insurance company following application. Savings are estimated by comparing the highest and lowest price for a shopper in a given health class. For example: for a 30-year old non-smoker male in South Carolina with excellent health and a preferred plus health class, comparing quotes for a $500,000, 20-year term life policy, the price difference between the lowest and highest quotes is 60%. For that same shopper in New York, the price difference is 40%. Rates are subject to change and are valid as of 2/17/17.
Copyright Policygenius © 2014-2019