How long does debt relief take?

How long does debt relief take?

There are a variety of debt relief options that can bring debt struggles to an end. It's understandable to want to know how long debt relief takes before you choose one.

The short answer is that any debt relief process will take time. There are no instant solutions to any serious problem. The amount of time depends on the size of the debt, your ability to make payments, and which debt relief option you pursue.

Getting a plan in place is the first step to breathing easier, Freedom Debt Relief says. Then you can put your plan into action, and get rid of the problem altogether.

Key takeaways:

• Debt relief could take anywhere from a few months to a few years, depending on your method and resources.
• Options for debt relief include debt settlement, debt management, Chapter 7 bankruptcy, and Chapter 13 bankruptcy.
• Debt relief strategies are usually hard on your credit score, but you can recover by sticking with your plan over time.

Debt relief options

If you can’t keep up with your debt payments, there are several debt relief options to consider. They all share the goal of finding a way to discharge your debt, whether that’s by repaying it or agreeing with your creditors to pay a reduced amount. Discharging your debt means getting rid of that obligation once and for all.

There's no single answer to the question of how long does debt relief take. A lot depends on what approach you use.

Here are five common debt relief options and how long each one could take:

• Debt consolidation. This involves using a new loan to pay off multiple debts. Common options include a personal loan, debt consolidation loan, or a balance transfer credit card. Debt consolidation helps simplify your finances. It could make sense if you qualify for a lower interest rate compared to what you're paying now. To get a new loan, you have to satisfy the lender's credit score requirements. Applying for a new loan could knock a few points off your credit score. Debt consolidation loan terms often run two to seven years.
• Debt settlement. You—or a debt consolidation company—negotiate with creditors to reduce your debt. If they agree to accept a lower payment, your obligation is fulfilled. We'll look at the detailed steps further on in this article. There is no minimum credit score for debt settlement. The debt settlement process usually involves collection accounts. Late payments and collections have a negative impact on your credit score. A professional debt settlement program usually takes two to four years.
• Debt management plan (DMP). A debt management plan doesn’t reduce the amount you owe. However, a credit counselor may negotiate with your creditors to reduce the interest rate or waive fees. The DMP itself doesn’t affect your credit score, but you'll have to close your credit card accounts. Closing accounts that still have a balance typically has a negative effect on your credit standing. DMPs usually last three to five years.
• Chapter 7 bankruptcy. This is the most common form of bankruptcy. It’s also the quickest. From the day you file until the time your unsecured debts are completely wiped out is typically just a few months. If you can afford a payment, you might not qualify for Chapter 7. Also, if you own any assets (things of value), you might be required to sell them. Chapter 7 has a negative impact on your credit, and stays on your credit report for 10 years. Chapter 7 bankruptcies usually take less than six months.
• Chapter 13 bankruptcy. In Chapter 13, a court decides how much you can afford to pay each month. You don’t lose your assets. The repayment plan usually lasts five years. If you complete the plan, any remaining debts are forgiven. It's possible to end up spending more on Chapter 13 (attorney fees, court fees, and debts) than you would if you pay the debts off yourself. About 50% of Chapter 13 cases fail because the required payment is very high. Chapter 13 stays on your credit history for seven years. Chapter 13 bankruptcies usually take five years (three years if you're low income).

The actual time these approaches take, the amount it costs, and the chances of success depend on the specifics of your situation.

How long does a debt settlement program take? An overview

Debt settlement programs usually take 24 months to 48 months. Most people settle their first debt within a few months. The length depends on how much debt you have, your income, your other expenses, and your commitment to stick to the plan. You can negotiate debt settlement yourself, or you can hire a professional company to handle it for you. The steps are the same.

The steps (and time required) it typically takes to complete a debt settlement program include:

• Evaluate your debt to assess your situation and develop a debt relief plan that works for you. This takes about an hour and a half, and is the first step toward setting your debt relief plan in motion.
• Negotiate with your creditors to devise a plan you can live with. The time it takes depends on your situation. Some creditors are more open than others to negotiating a workable payment plan. In some cases, you need to be ready to make a lump-sum offer.
• Complete the payment plans. How long this takes depends on the repayment period negotiated with each creditor and how much money you can put toward your plan each month.

The benefits of completing the program can stretch well beyond the time it takes to complete it. Debt settlement stays on your credit report for seven years. Getting rid of your debt could put you on better financial footing for the rest of your life. Once you’re not struggling financially, you could be better positioned to manage your finances and build good credit over time.

How long does debt settlement take? Here’s what to expect

You should go into debt settlement expecting the process to take 24 months to 48 months.

Each person's path to financial freedom is unique. The time involved depends on your situation. This includes how many accounts you’re trying to settle, how much debt you have, how long you’ve owed the money, and how much you can pay each month toward your debts.

Even with all the variables, knowing the usual timeline can give you some idea of what to expect.

Beginning the process: Initial consultation and enrollment

• Gather financial documents. Start by collecting all relevant financial info. This includes your income, expenses, and total debt.
• Choose a debt settlement company or self-manage. Research and select a reputable company, or handle the negotiations yourself.
• Open a dedicated bank account for settlement funds. Set up an account just for saving money to offer to creditors. If you work with a professional debt settlement company, they will set this account up for you. But it’s still your money, and you always have access to it.

If you’re thinking that it’ll be hard to save money when you’re already struggling to keep up with your debt payments, we understand that. Most people can’t afford to do both. Many choose to stop making their debt payments during this time. If you stop making debt payments, expect credit score damage. Your creditors could start collection efforts. You could even be sued for the debt.

Besides helping you afford to contribute to your dedicated account, stopping payments also sends a distress signal to your creditors. After all, they have little incentive to negotiate if you’re able to keep up with your payments.

Months 1-48: Build funds and negotiate with creditors

• Make monthly deposits into the settlement account. Keep adding money to this account. This builds up the funds needed for settlements.
• Stay in touch with the settlement company for updates. This helps you track your progress and receive guidance.
• If you're working with a professional debt settlement company, expert negotiators talk with your creditors to reduce the debt. This process can continue for some time.
• Start closing out debts. Statistics show the typical debt settlement participant gets their first account settled about four to five months into the program.

Months 6-48: Reach settlements and make payments

• Continue to reach deals with creditors and make all of the agreed payments. As funds build and talks progress, finalize settlement deals with your creditors.
• Ensure all settlement agreements are in writing. This is to ensure they are legally documented, and for your records.
• The average account settlement takes just over 14 months to complete. The longer you stay in a debt settlement program, the more accounts you could settle.

Remember, these time frames are general guidelines. They vary based on your circumstances. Stay committed to the process, and keep in close touch with your debt settlement company. This can help you move steadily toward financial freedom.

How long does debt relief stay on your credit report?

Your credit report is a record of how you handle credit accounts. Falling behind with payments impacts your credit score. Any debt relief route in which you don't pay the amount back in full, such as settling debts or filing for bankruptcy, is recorded on your credit report.

If you opt for debt settlement and pay less than the full amount, it stays on your credit report for seven years. However, the damage it does to your credit score might not matter that much. Most people who go forward with debt settlement are already struggling, and already have credit score damage. You might lose more points if you start the process with a higher score.

Debt management plans have a temporary negative impact because you have to close your credit card accounts before they’re paid off. Eventually, though, the paid-off accounts will show up on your credit reports as “paid as agreed.” Lenders may add a DMP flag to your report showing that you're in a negotiated payment plan, but that alone won’t drop your score. It's more of a yellow flag to any new creditor who checks your credit.

A Chapter 7 bankruptcy stays on your credit report for 10 years after you file. A Chapter 13 filing stays on your report for seven years after filing. The negative impact isn't as strong toward the end of those periods. You can expect your financial options to be most limited in the first two years to four years after your case is discharged.

If you're already struggling to manage debt, don't let fears of future credit damage stop you from addressing it. Your credit is likely already in trouble, and debt settlement may be the best long-term pathway to rebuilding it. Find the right debt relief option, and take steps to get out from under your debt. It could be a lot easier to build and maintain great credit once you're in a more stable financial position.

Comparing how long debt relief options take

Any comparison of debt relief options should consider the time it takes to go through the process and the long-term outcome of doing so.

Fastest debt relief option is not necessarily the best

When you pay down debt, look for the option that’s right for your financial situation, not the quickest one. For example, if stretching your repayments over a longer time period means you'll be able to pay them back in full, that may do less damage to your credit even though it takes longer.

Chapter 7 bankruptcy may be the quickest option on paper. However, that doesn’t tell the full story. If you have assets, the court may sell them and give the money to your creditors. The time it takes to get through the bankruptcy doesn’t account for the time it might take to replace the things you had to sell to get rid of the debt.

For instance, if your home is paid off, you might have to sell it or take out a mortgage against it to pay off your creditors. Likewise, the court generally won't allow you to keep an expensive car (each state sets different limits).

It's natural to want to know how long debt relief might take. Also think about how it'll impact your life, your finances, and your credit, and how long those effects will last.

Doing nothing takes longer than any of these options

The sooner you seek debt relief, the sooner you can finish. Plus, having a plan in place can greatly reduce your stress.

If your debt has become unmanageable, you’ll have to do something eventually. Delaying action only prolongs the struggle. In that sense, ignoring the problem will cause it to drag out the longest.

FAQs

What is debt relief?

Debt relief reorganizes your debts so that it's easier to pay them off. That might take the shape of debt consolidation, a debt management plan, debt settlement, or even bankruptcy. The right option for you depends on how much you owe, your ability to make repayments, and what type of debt you owe.

How does debt relief work?

Debt relief works in different ways depending on what route you take. For example, debt settlement is about negotiating with creditors to reduce the amount you owe. You can negotiate yourself, or work with a company to act on your behalf. Debt settlement works for certain types of unsecured debt, such as credit cards.

This story was produced by Freedom Debt Relief and reviewed and distributed by Stacker.