Are you a good candidate for debt relief? Here are the signs experts say to look for

With inflation lingering and even ticking back up recently, many Americans are struggling to keep up with their bills. Not only do the higher prices and dollar devaluation caused by inflation create a budgeting challenge for many households, but with high interest rates in place due to inflation, that makes it even harder to pay back debt in an affordable, timely manner.

Overall, U.S. consumers carry over $5 trillion in debt, and the average credit card interest rate is around 22%, according to the Federal Reserve. And, for some people, getting out of debt requires some external help, such as working with a debt relief service. Debt relief companies typically operate a little differently than traditional debt consolidation options; rather than just consolidating your existing debts into a new loan, a debt relief service typically involves negotiations with your creditors to obtain some level of debt forgiveness, meaning you can pay less overall, albeit with implications like potentially hurting your credit score.

However, not everyone is a good candidate for debt relief. If you owe a lot on your car, for example, that generally wouldn't meet debt relief qualifications, as these services usually focus on unsecured debt — i.e., debt that does not have collateral. That's because lenders have less incentive to provide debt forgiveness on secured debt, considering they could repossess your car or whatever the relevant collateral is, if needed. That said, there are a few ways to determine whether you might be a good fit for debt relief.

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Are you a good candidate for debt relief? Here are the signs experts say to look for

If you're wondering whether debt relief could be a smart move for you, here's what experts say to look for:

You're struggling to meet minimum payments on unsecured debt

One sign to look for is having unsecured debt and having trouble meeting the minimum payment requirements on those balances.

"Common examples of unsecured debt include credit cards, personal loans, small business loans, medical bills, some private student loans, and rent payments," notes   Natalia Brown, chief compliance and consumer affairs officer at National Debt Relief.

If you're struggling with repayment, debt relief companies might be able to help.

"In this case, a debt relief service could help you work through this challenge and even negotiate with your creditors to lower your monthly payments or the total amount of debt owed," says Leslie Tayne, founder and head attorney at Tayne Law Group.

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You have a high debt-to-income ratio

A high debt-to-income (DTI) ratio also could be a sign that you'd benefit from a debt relief service.

If you have a high DTI, that "means that a large amount of your monthly gross income goes toward debt obligations. In fact, if your DTI is 40% or higher, it could signal that your debts are too big to manage based on your current income," says Tayne.

Your debt balance isn't improving

If you're not seeing any reduction in your debt balance, especially if high interest rates mean your interest charges grow faster than you can pay them off, that could also make you a good candidate for debt relief.

"Individuals should never feel ashamed to explore options that offer affordable repayment options and the ability to pay off debt sooner, especially if they're struggling to pay overwhelming debt that is only growing with high interest rates and compounding interest," says Brown.

You're confident you can follow a new plan

Having a lot of debt doesn't automatically mean you'd benefit from a debt relief service, as you'll need to meet the new terms that the debt relief company helps you work out.

"You must be able to afford to make monthly payments toward a debt settlement program, and you must have the will to follow through with the program and see if it best suits your debt relief needs," says Felix Shipkevich, attorney and principal of Shipkevich PLLC.

Who isn't a good candidate for debt relief? 

While debt relief services can be a great way for many people to get a handle on debt, it's not the right fit for everyone.
"Typically, anyone who cannot afford to make monthly payments or has secured debt should consider bankruptcy, if qualified," says Shipkevich.

However, because both bankruptcy and debt relief services can hurt your credit and affect your future financial opportunities, you might instead prefer other options, like debt consolidation loans, that help you lower your interest rate. Or, you might refocus your efforts toward simply paying down your debt if possible.

"If an individual's budget allows, they should explore opportunities to pay off debt monthly, as it ensures they are not burdened with high interest rates and late fees that often come with debt. A key to successfully paying down debt is to pay more than the minimum payment required, as this will speed up the process of minimizing the total debt owed," says Brown.

"Perhaps they can even take advantage of a useful side hustle to bring in additional income. If they find that this is still not a realistic path forward to manage overwhelming unsecured debt, and before bankruptcy is even considered, debt relief may be a good option," Brown adds.