Debt relief can look like different things, whether it’s consolidating multiple credit card balances through a debt consolidation loan or going as far as declaring bankruptcy when you just can’t pay anything off.

Depending on which route you take, your credit score can take a serious hit, sometimes around 100 points. That doesn’t mean debt relief is always the wrong call, but it’s worth understanding the trade-off before you sign up.

Here’s what each type of debt relief does to your credit and how long the damage can last.​​​​​​​​​​​

How debt relief affects your credit

How does debt relief work?

How can debt relief affect your credit score?

How does debt relief appear on your credit report?

Is debt relief worth the hit to your credit?

How to rebuild your credit after debt relief

Compare debt relief options

Debt relief is a broad term for any strategy that helps you reduce, restructure or eliminate what you owe. The most common options are through debt consolidation, debt management plans, debt settlement and bankruptcy.

Debt consolidation rolls multiple debts into one loan or balance transfer card. Debt management plans let you repay the full amount through a nonprofit credit counselor, often at a lower interest rate. Debt settlement lets you negotiate with creditors to pay less than the full balance. Bankruptcy is a legal process that can discharge debt entirely or restructure it under court supervision.

The impact on your credit depends on which type of debt relief you pursue.

Debt consolidation: Consolidation can help or hurt your credit, depending on how you do it. For example, if you open a fresh balance transfer card, the hard inquiry and updated account can temporarily lower your score. But if you pay it down consistently, your score can recover and actually improve over time.

Debt management plans: These plans tend to do less damage to your credit since you’re still repaying the full balance.

Debt settlement: Settlement typically does the most damage because it requires you to stop making payments while negotiations are underway. Those missed payments get reported to the credit bureaus and can cause your score to drop significantly before a settlement is even reached — in some cases, around 100 points. Once a debt is settled, it appears on your credit report as “settled for less than the full amount,” which signals risk to lenders and can stay on your report for up to seven years.

Bankruptcy: Declaring bankryptcy carries the most severe long-term consequences as it can stay on your report for up to seven to 10 years, depending on the type you file.

How debt relief appears on your credit report depends on the type you pursue.

If you go through a debt management plan, your accounts may be noted as enrolled in a plan but no derogatory mark is added.

A settled account is typically marked “settled for less than the full amount” and can remain on your credit report for up to seven years. Missed payments made during the settlement negotiation period are reported separately and can also remain on your report for seven years from the date of the first missed payment.

A Chapter 7 bankruptcy can stay on your report for up to 10 years, while a Chapter 13 can stay up to seven years.

Whether debt relief is worth the hit to your credit depends on where your credit stands before you pursue it. If you’re already missing payments, your score is likely already taking damage and settling the debt could at least stop the bleeding.

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clients who complete its debt settlement plan can reduce their enrolled debt by an average of 20, according to National Debt Relief% to 25%, after fees.

Freedom Debt Relief has resolved over $20 billion in outstanding debts since 2002. It offers free credit card debt relief consultations.

If your credit is still in favorable shape, the drop from debt settlement or bankruptcy may outweigh the financial relief. A nonprofit credit counselor at the Financial Counseling Association of America (FCAA) or at the National Foundation for Credit Counseling (NFCC) can help you weigh the trade-off before you commit to anything.

Rebuilding your credit after debt relief can certainly take time, but it’s possible. Here are some steps to get started:

Generate every bill payment on time. Payment history is the biggest factor in your credit score, so consistency with always paying your bills on time matters more than anything else.

Open a secured credit card. If your credit is too damaged to qualify for a traditional card, a secured card can help you establish a positive track record. The Capital One Platinum Secured Credit Card is a positive starting point if you can’t afford a typical $200 deposit as you may qualify with as little as $49 down, plus Capital One will automatically consider you for a higher credit line in as little as six months. Another option is the U.S. Bank Altitude® Go Secured Visa® Card, which is one of the few secured cards that lets you earn travel rewards on everyday purchases like dining and streaming, and U.S. Bank can upgrade you to an unsecured card over time.​​​​​​​​​​​​​​​​

Capital One Platinum Secured Credit Card

28.99% variable

Terms apply. Read our Capital One Platinum Secured Credit Card review.

The Capital One Platinum Secured Credit Card can help you build, or rebuild, your credit because you can be approved with no credit or poor credit.

No annual fee

Low minimum refundable security deposit starting at $49 to get a $200 initial credit line

No rewards on purchases

No welcome offer

High APR

Highlights

Highlights shown here are provided by the issuer and have not been reviewed by CNBC Select’s editorial staff.

No annual or hidden fees. See if you’re approved in seconds

Building your credit? Using the Capital One Platinum Secured card responsibly could help

Put down a refundable security deposit starting at $49 to get at least a $200 initial credit line

You could earn back your security deposit as a statement credit when you adopt your card responsibly, like making payments on time

Be automatically considered for a higher credit line in as little as 6 months with no additional deposit needed

Enjoy peace of mind with $0 Fraud Liability so that you won’t be responsible for unauthorized charges

Monitor your credit score with CreditWise from Capital One. It’s free for everyone This also touches on aspects of bear market.

Get access to your account 24 hours a day, 7 days a week with online banking to access your account from your desktop or smartphone, with Capital One’s mobile app

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Balance transfer fee

$0 at the Transfer APR, 4% of the amount of each transferred balance that posts to your account at a promotional APR that Capital One may offer to you

U.S. Bank Altitude® Go Secured Visa® Card

Information about the U.S. Bank Altitude® Go Secured Visa® Card has been collected independently by CNBC Select and has not been reviewed or provided by the issuer prior to publication.

See terms

*See rates and fees, terms apply. Furthermore, experts in portfolio note the continued relevance.

You can earn travel rewards for everyday spending, a rare feature for a credit card

No fee charged on purchases made outside the U.S.

$15 credit for annual streaming service purchases

Requires a $300 to $5,000 deposit to open the card

Keep your credit utilization low. Try to employ no more than 30% of your available credit at any given time.

Avoid opening too many novel accounts at once. Each application triggers a hard inquiry, which can temporarily lower your score.

Monitor your credit report. Check your credit report for errors or inaccuracies (especially after debt settlement) and dispute anything that looks wrong. Over time, the negative marks from debt relief will carry less weight as your positive history builds up.

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At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can create informed decisions with their cash. Every debt relief article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of financial products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.

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