5 Myths About Debt Relief Nobody Should Believe in 2024

Debt relief encompasses a variety of strategies, including creditor hardship programs, debt settlement, debt management, debt consolidation and bankruptcy. The debt relief option that will work the best for you will depend on the type of debt you have and the amount you owe, as well as your ability to repay it.

It also helps to understand the ins and outs of each type of debt relief, including the myths surrounding debt relief. 

Learn More: 8 Myths About Debt That Boomers Must Stop Believing Before They Retire

Check Out: 7 Common Debt Scenarios That Could Impact Your Retirement — and How To Handle Them

GOBankingRates surveyed 999 Americans to find out what they believe about debt relief and debunked the beliefs that are considered myths below

Myth: It Reduces the Likelihood of Legal Action by a Creditor

According to the survey, 23% of respondents believed that applying for some form of debt relief would reduce the likelihood that creditors would take legal action. 

Unfortunately, bankruptcy is the only debt relief option that affords you protection from legal action by a creditor. As soon as your case is filed with the court, creditors can no longer pursue money judgments against you due to an automatic stay order.

However, with debt settlement — a negotiated reduced payback amount in the form of a lump sum — you are not protected from a creditor taking legal action until the debt is settled with a binding written agreement. And with a debt management plan, you’re not legally protected from a creditor’s action until your debt has been paid in full within the terms of the agreed-upon payment plan.

Read Next: You Can Get These 3 Debts Canceled Forever

Myth: It’s a Last Resort

Approximately 21% of respondents believed that debt relief should be considered as a last resort. 

The truth is that debt relief involves negotiating or consolidating your debt to make it more manageable. And in some cases, such as if you opt for a creditor hardship program or a debt management program, it can be very helpful.

However, debt settlement is often considered as a last resort for people struggling with debt because it can impact your credit, cost a lot and result in charge-offs. Additionally, bankruptcy is considered even more of a last resort for various reasons, including that it can make it hard for you to get new credit in the future.

Myth: It’s a Dishonest Practice or a Scam

Approximately 9% of respondents believed that debt relief is a dishonest practice or a scam. 

Ben Klesinger, co-founder and CEO of Reliant Insurance Group and Helping Hand Financial, said that while it’s true that there are predatory companies out there, not all debt relief services are fraudulent. 

“Reputable organizations like Helping Hand Financial, which I co-founded, are committed to offering client-first, holistic financial strategies,” he said. “We ensure transparency in our processes and aim to help individuals regain financial stability without falling prey to scams.”

Myth: It Will Ruin Your Credit Score

The thought that debt relief will ruin your credit score can certainly be a deterrent. However, it’s not true. 

“One prevalent myth is that debt relief will entirely ruin your credit score,” Klesinger said. “While debt relief strategies like debt settlement can impact your credit, it’s not necessarily a permanent or catastrophic effect. For example, if you’re dealing with overwhelming credit card debt and opt for a debt management plan, you might see a temporary drop in your score. However, effectively managing and eventually eliminating your debt can lead to a long-term improvement in your creditworthiness.”

Myth: Using a Debt Relief Solution Means You Are a Failure

Klesinger said that many people believe they must handle their debts alone and that seeking help is a sign of failure. 

“This is far from the truth,” he said. “Just as businesses seek specialized insurance coverage to mitigate risk — like professional liability insurance for dental practices or cyber liability for legal firms — individuals can benefit from professional debt relief services. With customized support, you can navigate through financial crises more efficiently and with less stress.”

Methodology: GOBankingRates surveyed 999 Americans aged 18 and older from across the country on between May 3 and May 7, 2024, asking three different questions: (1) Is there anything standing in your way toward paying off your debt(s)? (select all that apply); (2) What are your concerns about your financial situation right now? (select all that apply); and (3) Which of the following are true of debt relief? (select all that apply). GOBankingRates used PureSpectrum’s survey platform to conduct the poll.

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This article originally appeared on GOBankingRates.com: 5 Myths About Debt Relief Nobody Should Believe in 2024

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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