What is The Most Important Thing You Should Know Before Doing a Debt Relief Program?

Before you do a debt relief program, there are a few things you should be aware of. Debt relief can be highly effectively in helping you get out of credit card debt if you stick to the plan. However, that is also dependent on you. If you skip program payments it could negatively impact your ability to get out of debt in the future and successfully complete the program.

Credit

Credit is usually what most consumers harp about since it’s the most obvious thing to be worried about. When many think about the ills of doing a debt relief program, they often think that they’ll never get credit again or they get nervous about their financial futures. However, this simply is not the case! When consumers go through the program they are clearing their name of debt and in turn becoming more credit worthy. In the long term, this will make you more credit worthy. Even though you are settling your credit card accounts, not having those accounts weigh on your utilization rate and debt to income ratio will be a significant improvement to your credit in the long term.

Credit or Money?

Given the option, would you chose to have better credit or more money? Everyone should value money over credit but you would sometimes be surprised. Good credit is used to acquire capital at a cheap rate. Capital is money and the main reason we want good credit is to get more money. So, is it safe to say that when consumers have more money they can almost avoid the need for credit altogether? If you have all the money you could possibly need, would you ever actually need credit again? This is how consumers should look at the credit question with regards to debt relief. You should never value credit more than money. When you are going through the motions of paying minimum payments on credit cards, you might not realize how much money is actually being wasted on interest payments, but its significant. The interest payments alone are a huge waste of money and will in fact wind up costing you more money in the long term. The opportunity cost for losing that money will be detrimental to your financial standing.

So, there is always a trade off with regards to the program. Most consumers want to save money off the debt amount they owe but they don’t want to lose their credit standing. Your Credit score is essentially your ability to acquire money in the future. Money on the other hand is money. Money today will always be worth more than credit tomorrow. So, it’s normal that consumers have this inherent fear associated with hurting their credit but if we are making a tradeoff, the tradeoff should always value “money” over “credit”. Again, credit grants us access to money in the future, when the tradeoff occurs we should never devalue money for credit. Money will always be worth more than credit.

Tax Implications

Many consumers get concerned about owing taxes on the principal amount saved from their debt. This is a valid concern to have as any forgiven debt amount of $600 or more could lead to taxes owed in the future. Consumers could potentially receive a 1099-C for any and all of the principal amount saved. So, if a consumer saves $10,000 off a $20,000 credit card account the consumer could end up owing taxes on the $10,000 saved. That $10,000 saved would become earned income. So, if your income was $40,000 in 2025, and you saved $10,000 in 2025, it’s like your income would’ve jumped to $50,000 for the tax year 2025. Many consumers have worries about taxes. They often say that two things in life are certain. Death and Taxes. The same goes for consumers looking to debt relief. Unfortunately, there is a possibility that we could owe money at the end of the year, given the principal savings. However, consumers will usually not receive a 1099-C on every account. Please consult a tax consultant if this worries you.

Relationship with Banking Partners

Many consumers get nervous about the potential ruination of relationships with creditors, lenders, banks, etc. Although some creditors might not inherently like having debts they borrowed settled, the fact remains that they will be happier with something instead of nothing. Although every bank and lender are different it is possible that some of them will actually remember that you settled the account. It shouldn’t otherwise negatively affect your relationship with them in the long term, but you might want to consider leaning on your other banking relationships just to be on the safer side. Every bank and every creditor are completely different, some banks don’t mind and will be glad to give you a new credit card account while you settle on the phone with them. Others do mind and it might be prudent to give them some time. For this exact reason it really depends on your credit card company and their policies.

Potential Future Employment Impacts – Security Clearance

There could potentially be an impact to your employment if you have a security clearance. Depending on your job, you should know that doing a debt relief program could impact future employment eligibility if you have a security clearance. A security clearance could be revoked given the program so make sure to reach out to a manager to ask if you are allowed to participate in the program.

Do You Have Enough Debt for The Program to Be Beneficial?

If you don’t have a large enough debt amount, it’s important you understand that you could potentially be wasting your time considering debt relief. There is typically a threshold amount that makes the program “worth doing”. If you only have a couple thousand dollars in credit card debt the program might not be worth moving forward with.