U.S. credit card balances increased by $21 billion in the second quarter of 2026, coinciding with a Federal Reserve interest rate hike on September 16. This increase, the first since 2023, raised the benchmark rate to a range of 3.75% to 4.00%. The rising cost of borrowing has led more consumers to investigate debt relief programs, which aim to renegotiate or settle unsecured debts such as credit cards and personal loans.
Debt relief companies generally operate by having clients deposit monthly payments into a dedicated savings account rather than paying creditors directly. Once funds accumulate, the company negotiates with creditors to accept a reduced balance. However, the Consumer Financial Protection Bureau (CFPB) notes that these programs carry risks, including potential credit score damage, late fees, and lawsuits from creditors who may refuse to participate in settlement negotiations.
Several companies currently provide these services with varying fee structures and requirements. National Debt Relief, recognized by Forbes Advisor as a top provider for 2026, reports settling over $20 billion in debt since 2009. Freedom Debt Relief requires a minimum of $7,500 in unsecured debt and provides legal assistance at no additional charge. Other providers, such as New Era Debt Solutions and DebtBlue, report average resolution timelines of just under 28 months and emphasize pricing transparency regarding third-party account fees.
Performance-based fees are a standard industry practice, where companies collect a percentage of the settled or enrolled debt only after a successful negotiation. Pacific Debt Relief and National Debt Relief both report fee ranges up to 25% of the enrolled debt. The CFPB warns consumers to avoid any company that charges fees before settling debts or guarantees that all debt can be eliminated for a specific percentage reduction.
The knock-on effects include potential tax liabilities, as the IRS considers forgiven debt to be taxable income. For example, a person who has $5,000 of debt forgiven may see their federal tax bill increase for that filing year. Additionally, for active-duty military members, consolidating or refinancing loans may result in the loss of interest rate protections under the Servicemembers Civil Relief Act (SCRA), which limits pre-service loan rates to 6 percent.
Next steps for borrowers include vetting companies for Better Business Bureau accreditation and reviewing alternatives such as nonprofit credit counseling or debt consolidation loans. Those who proceed with settlement should prepare for potential lawsuits from creditors during the negotiation phase. Federal interest rates may tick up again later in 2026 or in 2027, which would further increase the cost of carrying unsettled high-interest balances.