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If you are struggling with debt, you have options about the kind of help you can access. Credit counseling organizations are generally nonprofits that are dedicated to not only helping their clients get out of debt, but also creating a sustainable way forward with free or low-cost educational tools and resources. Debt relief companies, on the other hand, are for-profit companies that charge you, often steeply, for the service of negotiating and settling your debt with your creditors or with collections agencies.

While both types of organizations can help you find relief from at least some of your debt, their motivations and structures are very different. Here’s a closer look.

Debt Settlement vs Credit Counseling: What’s the Difference?

As mentioned briefly, debt settlement is usually done by a for-profit debt settlement company that works to negotiate your debts with creditors or collections agencies for a fee. Not all creditors will negotiate with debt settlement companies, but if they will, you may be able to pay a lower overall amount. Keep in mind that it still may not immediately improve your credit score, and in some cases, may even make it worse (which we’ll discuss more in just a moment).

Credit counseling, on the other hand, is usually performed by financial professionals who work at nonprofit credit counseling organizations. While they may help you create a debt management plan — potentially even one that might save you money — that’s not all they’re there to help you with.

Even if they don’t negotiate directly with your creditors, credit counselors can help you create or manage a budget, develop a sustainable plan to minimize debt over the long run, and give you access to low- or no-cost resources including workshops and educational materials. While they may assess a fee, it’s usually low, and they may also have options even if you can’t afford to pay them at all.

Recommended: Debt Consolidation Calculator

How Does Debt Settlement Work?

Debt settlement companies are just what their name suggests: companies charging you for the service of settling debts. However, since not all creditors will even work with debt settlement companies, they may not actually be able to save you any money. If they can, they’ll be charging you for their service. Their fees may be a lot higher than a credit counselor’s would be.

Pros of Debt Settlement

Here, the potential upsides of debt settlement:

•  Debt settlement might help you save money on very large debts. If a debt settlement company can successfully negotiate with your creditor, you may be able to get out of debt by paying far less than you would otherwise owe, so long as you can pay it as a lump sum.

•  Legally, your money must remain under your control while you’re saving it. The debt settlement company may require you to save up the lump sum in a special account. But even if they do, those funds must remain under your control until they are used by the company to pay off your debt.

Cons of Debt Settlement

Next, the possible downsides:

•  Debt settlement is expensive. Even if the settlement is expensive, the company will charge you for their services, which eats into the amount you’re saving on your debts. Keep in mind that debt settlement companies are for-profit organizations.

•  Debt settlers aren’t looking at the whole picture. While a credit counselor may be able to help you come up with a sustainable, holistic plan to manage your money going forward, debt settlers are focused only on, well, settling your debt. This means you could wind up in the exact same place in the future, if your financial habits don’t change.

•  Debt settlement services might actually make your credit worse. Some debt settlement companies may tell you to stop paying your debt until they reach an agreement with the creditor, which could be negatively reflected in your credit score and history.

•  Debt settlement doesn’t always work. Because some creditors won’t negotiate with debt settlement companies, using one may not actually save you any money. (Note: According to Federal Trade Commission rules, a debt settlement company can never charge you for their services before they’re successfully rendered. If you encounter a debt settlement firm that’s trying to take your money up front, you shouldn’t work with them.)

💡 Quick Tip:  Wherever you stand on the proposed Trump credit card interest cap, one of the best strategies to pay down high-interest credit card debt is to secure a lower interest rate. A SoFi personal loan for credit card debt can provide a cheaper, faster, and predictable way to pay off debt.

What Is Credit Counseling?

Credit counseling is very different from debt settlement: It’s a holistic approach to money management offered by expert financial planners and advisors at a low cost.

While helping you negotiate and potentially lower your debts with creditors is one potential service a credit counselor may offer (though they may also not), their main concern is getting you set up for a successful financial future in the long term.

Pros of Credit Counseling

There can be several benefits to credit counseling:

•  Credit counseling is built to be affordable. While credit counselors may charge a small fee for their services, they’re usually much lower than you’d pay for financial advice in any other context. Plus, no-cost options are often available for those with demonstrated need.

•  Credit counseling can help you build a sustainable financial future — not just settle a debt. By giving you the knowledge and tools you need to create positive financial habits, credit counseling can help you make a lasting change, not just pay off a bill.

•  Credit counseling can give you access to other educational opportunities and materials. Along with one-on-one credit counseling, these nonprofit organizations may host community workshops and classes or provide you with free information.

Cons of Credit Counseling

That said, there are potential disadvantages to credit counseling:

•  Credit counseling requires you to do some of the work. Although credit counselors will assist you along the way, you’re the one who has to create (and stick to) a budget and form positive credit habits.

Recommended: What Is a Credit Card Interest Cap?

How Can a Nonprofit Credit Counselor Help You?

By helping you form the long-lasting financial habits that can keep you out of debt or make it easier to follow your monthly budget, working with a credit counselor can change the shape of your financial future.

In short, think of debt settlement agencies as for-profit firefighters: They may be able to help you put out a blazing debt spiral in an emergency, but they’ll charge you for the privilege. Nonprofit credit counselors, on the other hand, help you put out the fire and teach you how to keep your financial life flame-free, all for low or no cost.

What Is the Process of Working With a Nonprofit Credit Counselor?

When you sign up to work with a credit counselor, you’ll likely start with an initial consultation session, which may be in person, over the phone, or over a video conferencing service. This initial consultation will likely last about an hour and may include going over your budget and creating a debt management plan.

Depending on your needs, your counselor may recommend follow-up sessions, or may direct you to workshops and resources to help you DIY your own financial education.

What You Should Know About Debt Relief Companies

While both debt settlement companies and credit counseling agencies can help you get out of an immediate debt crisis, rebuilding your credit is always a time-consuming and labor-intensive process that takes persistence and patience. A credit counselor can help you tackle that project with support.

Keep in mind that there are ways to tackle a debt spiral yourself, too, such as taking out a personal loan in order to consolidate multiple lines of credit or debts. Doing so can both streamline payments into one monthly bill and may be able to save you money, depending on the personal loan you qualify for.

The Takeaway

Debt settlement is offered by for-profit companies that may charge steeply for their services — and might not even be able to help. Credit counseling, on the other hand, is a more holistic service offered by nonprofit organizations that have your best interests and a firm financial future at heart. If you are dealing with high-interest debt, there are various ways to address the situation, from budgeting to taking out a personal loan.

Whether or not you agree that credit card interest rates should be capped, one thing is undeniable: Credit cards are keeping people in debt because the math is stacked against you. If you’re carrying a balance of $5,000 or more on a high-interest credit card, consider a SoFi Personal Loan instead. SoFi offers lower fixed rates and same-day funding for qualified applicants. See your rate in minutes.

FAQ

What is the difference between debt settlement and credit counseling?

Debt settlement is a service offered by for-profit companies who negotiate your debts with creditors and collections agencies for a fee, often a large one. Credit counseling, on the other hand, is typically provided by nonprofit organizations and aims to help you better understand and manage your overall financial situation, including debt.

Is it better to consolidate or settle debt?

While everyone’s financial needs are different, consolidating your debt is a self-directed debt relief strategy that can help you build your credit and establish positive financial habits that’ll keep you in good standing. Debt settlement agencies are for-profit companies that may charge you steeply for the privilege of helping you negotiate your debt with creditors.

How bad is debt settlement for your credit?

Many factors go into determining someone’s credit history, but debt settlement agencies may advise you to stop paying your bills until their negotiations are over. This can negatively impact your credit history, though paying off large amounts of debt, especially debt in collections, can be positive for your credit history. It’s all about creating sustainable habits over the long run.

Photo credit: iStock/Delmaine Donson

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SOPL-Q425-005

Credit card debt is a national issue in the United States. In fact, according to the Federal Reserve Bank Of New York, Americans’ total credit card balance was $1.21 trillion as of early 2025 — a new record, but not in a good way.

If you’re one of the many people struggling with credit card debt, you know that getting out from under it isn’t easy. The good news, however, is that you do have options. What follows are some smart, simple credit card debt elimination plans that can help you make a dent in your debt — without giving up everything in your life that brings you joy.

How Do You Determine Debt Level?

First things first: In order to pay off debt, it can be helpful to know actual numbers. One way to help get concrete numbers is to gather monthly credit card statements and start to add up total debts. While sitting down and adding up those numbers might seem scary, getting all the information can be a great first step to tackling credit card debt once and for all.

When adding up the amount of debt owed, it might also be helpful to take interest into account — thanks to high interest rates, some debts may actually now be higher than the initial amount owed, even after making payments. A credit card interest calculator can help determine the cost of debt once interest is factored in.

💡 Quick Tip: Credit card interest rates average 20%-25%, versus 12% for a personal loan. And with loan repayment terms of 2 to 7 years, you’ll pay down your debt faster. With a SoFi personal loan for credit card debt, who needs credit card rate caps?

Accounting for Living Expenses

We all know that credit card payments aren’t the only expense in life, which means part of tackling credit card debt may require assessing the other expenses life brings.

To understand exactly where your money is going each month, you may want to take stock of your current income and expenses. This simply involves going through your last three or so months of bank and credit card statements, adding up what is coming in each month on average (income) as well as what is going out each month on average.

You may also want to break down your spending into categories, then divide those categories into two buckets — essential expenses and nonessential expenses. To free up funds for debt repayment, you may need to cut back on some nonessential spending, such as dining out, streaming services, and clothing.

Recommended: Budgeting for Basic Living Expenses

Creating a Budget

After taking stock of financials like your monthly expenses, hunkering down and making a budget is the next logical step. Making a budget doesn’t have to be highly restrictive or complicated. The idea behind budgeting is simply that, rather than spend money willy-nilly as expenses come up, you make sure your spending actually lines up with your priorities.

There are many different types of budgets but one simple approach you might consider is the 50-30-20 rule, which recommends putting 50% of your money toward needs (including minimum debt payments), 30% toward wants, and 20% toward savings and paying more than the minimum on debt payments.

Establishing a Plan To Tackle Debt

Once you have an idea of how much you can spend beyond the minimum on credit card repayment, you’ll want to come up with a strategy to pay off your debt. There is no one-size-fits-all plan for credit card debt elimination, so it is important to consider what type of payoff plan will work best for your specific circumstances.

One popular debt elimination plan is called the snowball method. It’s called this because much like building a snowball, you start with your smallest debt, and then roll on to the next highest debt, and so on.

So for example, if a borrower has three separate credit cards with balances of $1,000, $5,000, and $10,000, the snowball method would call for paying off the card with the $1,000 balance first by putting extra money towards that debt while paying on only the minimum balance on the cards with $5,000 and $10,000 balances.

Once the $1,000 debt is paid off, the borrower would then use the newly freed up money from the $1,000 debt payment to start making higher payments on the $5,000 debt and so on. This method is popular because paying off a small debt can help you gather momentum to keep paying off larger debts.

Another popular pay-off plan is the avalanche method. This involves paying off the balance of the credit card with the higher interest rate first. In this scenario, a borrower who has three separate credit cards with interest rates of 17%, 20%, and 22% would focus on paying down the credit card with the 22% interest rate first.

Why focus on the credit card with the highest interest rate? Cards with higher interest rates generally cost you the most over time. Thus, paying off the card with the highest interest rate first could help you save money instead of allowing it to accrue more interest while you pay off other credit cards.

Recommended: What Is the 10 Percent Credit Card Interest Rate Cap Act?

Considering Consolidation

If the snowball or avalanche method doesn’t seem right for you, you may want to consider credit card consolidation. Consolidating your credit card debt involves either transferring your debt to a new credit card with, ideally, a lower interest rate, or taking out a personal loan, ideally with a lower interest rate, to pay off existing credit card debt.

Why replace one type of debt with another type of debt? Some borrowers may qualify for a lower interest rate on a personal loan than the rate they are paying on their credit card debt, which can help you save money. Consolidation also simplifies the debt repayment process. Instead of paying multiple credit card bills each month, you only have to make one payment — on the personal loan.

A personal loan also typically comes with a fixed interest rate and established repayment term. This means that the interest rate agreed to at the start of the loan stays the same throughout the length of the loan.

And unlike the revolving debt of credit cards, personal loans are known as installment loans because you pay them back in equal installments over a predetermined loan term. This means that you won’t accrue interest for an indeterminate time, as is possible with a credit card.

Recommended: Guide to Unsecured Personal Loans

The Takeaway

Having a credit card elimination plan in place is key to getting rid of high-interest debt. To get started, you’ll want to assess where you currently stand, find ways to free up funds to put towards debt repayment, and choose a debt payoff method, such as the avalanche or snowball approach. Another option is to get a debt consolidation loan, which is a kind of personal loan.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

How to create a plan to pay off credit card debt?

Yes, you can create a plan to pay off credit card debt yourself. You would need to figure out how much you owe to your creditors and then begin paying off debt. While making at least the minimum payment on all accounts, focus on paying down one debt at a time. Put any extra funds towards this goal.

What is the 7-year rule for credit card debt?

The 7-year rule says that negative marks stay on your credit report for seven years or possibly longer and can negatively impact your credit score. After that period, most of these marks fall off your report.

Can I create my own debt management plan?

You can create your own debt management plan, but you will need to manage making payments on time yourself and communicating with creditors as necessary.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SOPL-Q225-068

Debt can feel like a pair of handcuffs, keeping you from doing what you want to do and adding stress to your life. To pay it all off and get yourself free takes focus, work, and patience. The right debt reduction plan can help you start paying down your balances, stay on track with your budget, and work towards your future financial goals. Here are some options to get you started.

How Does a Debt Reduction Plan Work?

A debt repayment plan is a structured strategy for paying off debts over time. Whether you’re dealing with credit card balances, student loans, or medical bills, a repayment plan helps you systematically tackle your obligations. The primary goal is to regain control of your finances, reduce financial stress, and ultimately become debt-free.

Debt repayment plans can vary widely depending on individual circumstances. In some cases, a debt repayment plan might include negotiating lower interest rates, consolidating debts into a single loan (such as a personal loan), or even working with a credit counseling agency to create a structured program with lower fees. These steps can help you pay off your debt faster and reduce the total amount of interest you pay over time.

Ultimately, a debt reduction plan is about making consistent progress. Even small monthly improvements can lead to significant financial relief over time.

💡 Quick Tip: Not sure what certain loan terms mean? Check out the Personal Loans Glossary for a simple guide to the basics.

Pros and Cons of Debt Repayment Plans

As with most financial choices, debt repayment plans come with both benefits and risks. Here are some potential pros and cons to keep in mind as you weigh your repayment options.

Pros

•   Improved financial organization: A debt repayment plan allows you to clearly see what you owe, how much interest you’re paying, and what your monthly commitments are. This clarity makes it easier to budget and avoid missing payments.

•   Reduced financial stress: Having a clear plan can reduce anxiety about money. Instead of feeling overwhelmed, you’ll have a roadmap to follow and milestones to celebrate along the way.

•   Potentially lower costs: Depending on the debt payoff strategy or assistance program you use, a repayment plan might help reduce your interest rates, consolidate debt into a lower-interest loan, or eliminate late fees and penalties.

•   Faster debt elimination: If you’re able to lower your interest rates or step up your monthly payments, you may be able to significantly reduce your repayment timeline.

•   May help build credit: Making on-time payments consistently and reducing your credit utilization ratio can have a positive impact on your credit profile.

Cons

•   Requires discipline and commitment: A debt repayment plan isn’t a quick fix. It requires you to stick to your budget, avoid new debts, and stay motivated, sometimes for months or even years.

•   Might include fees or restrictions: If you enroll in a third-party repayment program, such as through a credit counseling agency, you may be subject to administrative fees or restrictions on using your credit cards.

•   Impact on lifestyle: To allocate more money toward debt, you may need to reduce discretionary spending, which could mean fewer luxuries, trips, or nice dinners out.

•   Not a one-size-fits-all solution: What works for one person might not work for another. A plan that focuses on high-interest debts might be frustrating for someone who needs quick wins to stay motivated.

Recommended: What Is the Difference Between Personal Loan vs Credit Card Debt?

How to Create a Debt Repayment Plan

Creating a debt repayment plan starts with assessing your current financial situation and making intentional choices. These tips can help you start — and stick with — a program.

Prioritize Expenses

A good first step is to assess your current cash flow — what’s coming in and what’s going out. You can do this by gathering the last few months of financial statements and using them to assess your average monthly income and spending.

If your income doesn’t cover all your expenses and debts, you’ll want to find areas to cut back. Dining out, subscription services, and nonessential shopping are common places to start. Any money you free up can then be funneled toward debt repayment.

Next, list all your debts, including:

•   The total balance

•   The interest rate

•   The minimum monthly payment

This will help you decide which repayment method to follow.

Consider a DIY Plan

Some ways to tackle high-interest debt on your own include:

•  The debt snowball method: With this approach, you funnel extra payments to the debt with the smallest balance, while paying the minimum on the rest. Once that debt is paid off, you direct the extra money towards the next-smallest balance, and so on. This approach can boost motivation by offering quick psychological wins.

•  The debt avalanche method: Here, you make extra payments on the debt with the highest interest rate, while paying the minimum on the rest. When that debt is paid off, you target the debt with the next-highest rate, and so on. This method can save money long-term.

Negotiate With Creditors

If you’re really struggling to make your debt payments, consider reaching out to your creditors and explaining your situation. They may be willing to offer relief, such as reducing interest rates, pausing payments, or extending loan terms. Keep in mind that some of these options may increase costs in the long run and/or impact your credit.

Another option is to work with a nonprofit credit counseling agency. For a small fee, they will negotiate with your creditors on your behalf and set up a debt management plan. This typically involves closing your credit accounts and making one monthly payment to the agency; the agency distributes payments to your creditors.

Use Personal Loans

Another debt payoff strategy you might consider is refinancing your debt. This involves taking out a personal loan (often called a debt consolidation loan) and using it to pay off your balances. Personal loans typically have lower interest rates than credit cards, so this option could reduce costs. It can also simplify repayment by rolling multiple monthly payments into one.

If you’re interested in exploring this option, see if you can prequalify for debt consolidation loans online. This will give you an idea of what rate you are likely to qualify for and only involves a soft credit pull, which won’t impact your credit. You can then run the numbers using a debt consolidation calculator to see how much you could potentially save.

💡 Quick Tip: There is a lot of debate around credit card interest caps. For consumers carrying high-interest credit card balances, however, one of the shortest paths to debt relief is switching to a lower-interest personal loan. With a SoFi credit card consolidation loan, every payment brings you closer to financial freedom.

Tracking Progress and Staying Motivated

Debt repayment is a marathon, not a sprint. To avoid burnout, it’s important to track your progress and celebrate small wins. These strategies can help:

•  Use budgeting apps or spreadsheets to track balances and payment history.

•  Set mini-goals, such as paying off one credit card or reducing your total debt by 10%.

•  Visualize your progress with debt payoff charts or graphs.

•  Reward yourself when you hit milestones — just make sure rewards don’t derail your plan financially.

Accountability also helps. Consider sharing your goals with a trusted friend or join online communities focused on debt-free living. Knowing others are on the same journey can keep you going.

Adjusting Your Plan as Changes Occur

Life is unpredictable. Job changes, unexpected expenses, or even positive developments like getting a raise can all affect your debt repayment plan.

It’s important to check in with your budget regularly (say, monthly or quarterly) and adjust as needed. If your income increases, consider allocating more to your debt payments. If expenses rise or emergencies come up, you may need to pause or reevaluate your plan.

Flexibility doesn’t mean failure. The key is to stay engaged with your finances and continue working toward your goal, even if the timeline shifts.

The Takeaway

Having a debt reduction plan can help you pay off the money you owe and feel less stressed about your finances. By understanding how debt repayment works, weighing the pros and cons, and following a structured plan tailored to your situation, you can make steady progress toward becoming debt-free.

Whether you’re starting small with the snowball method, consolidating debts with a personal loan, or simply prioritizing consistent payments each month, the most important step is getting started. Success is within reach — you just need a clear plan and the commitment to follow through.

Credit cards have an average APR of 20%–25%, and your balance can sit for years with almost no principal reduction. Personal loan interest rates average 12%, with a guaranteed payoff date in 2 to 7 years. If you’re carrying a balance of $5,000 or more on a high-interest credit card, consider a SoFi Personal Loan instead. See your rate in minutes.

FAQ

How can I make a debt reduction plan?

To make a debt reduction plan, start by listing all your debts, including balances, interest rates, and minimum payments. Next, choose a repayment strategy, such as the debt snowball (paying off smallest debts first) or debt avalanche (tackling highest-interest debts first). It’s also important to adjust your budget to free up money for extra debt payments. For best results, avoid taking on new debt and track your progress monthly. Alternatively, you can work with a credit counselor for guidance and support.

Can I create my own debt reduction plan?

Yes, you can create your own debt reduction plan. Begin by organizing your debts and choosing a repayment strategy that suits your financial situation, such as the snowball or avalanche method. Next, develop a monthly budget to ensure you’re spending less than you earn, allowing extra money to go toward debt. Set milestones to stay motivated and regularly track your progress. With discipline and planning, a DIY approach can be both effective and empowering.

Is debt relief a good idea?

It depends on your situation and the debt relief program you use. Nonprofit credit counseling agencies offer debt management plans for a low fee that allow you to pay your debt in full, but often at a reduced interest rate or with fees waived. Just keep in mind that you’ll likely have to live without credit until you complete the plan.
When looking for debt relief, be wary of for-profit debt settlement companies that charge high fees or make unrealistic promises.

What’s the difference between debt reduction and debt consolidation?

Debt reduction involves lowering the total amount you owe, often through negotiation, settlements, or bankruptcy. It’s typically used when you’re unable to pay your debts in full. Debt consolidation, on the other hand, combines multiple debts into one new loan (ideally with a lower interest rate) making repayment more manageable. Consolidation doesn’t reduce your total debt but can simplify payments and save money on interest. Choosing between the two depends on your financial goals and ability to repay.

How long does it take to pay off debt with a structured plan?

The time it takes to pay off debt with a structured plan varies based on your total debt, repayment strategy, and how much extra you can pay monthly. Using a formal debt management plan offered by a credit counseling agency, many people become debt-free in two to five years. Larger debts may take longer, especially if you’re only making minimum payments.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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