Solutions to Dealing with Debt

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If you have any debt you may be looking for away to deal with it. If you have too much debt, and feel overwhelmed with just making your monthly minimum payments, you may be desperate to find a solution to get out of debt as quickly as possible. The truth is that debt weighs down your budget. It prevents you from building wealth and it can stop you from reaching your ultimate goals. There are several different approaches you can take to get out of debt, and you should consider all of your options before making a decision on the best course for you.

Remember that it took time to build the amount of debt you currently have, and it will take time to pay it all off.

Debt Payment Plan

The best solution is to set up a debt payment plan and work to get rid of your debt on your own. This may take more time, but it is the best option for your credit score. It also helps you to address your spending habits that got you into debt. Most people who choose to get out of debt this way do not go back into debt again. There are two components to this plan. First, you need to list your debts in the order you want to pay them off. Then any extra money you have needs to be applied to those debts. The second part is to follow a written budget, and to find extra money each month to put towards those debts. The budgeting aspect is the key to controlling your finances and building wealth in the future.

Credit Counseling

Credit counseling is another option to help you get out of debt.

You will go to a credit counseling service and take in a list of the debts you owe, and your current monthly expenses. The service works with you to put together a budget you can follow. Then they contact your creditors and work out a lower interest rate for your payments. Then you pay the credit counseling service one monthly payment and they in turn pay your creditors.

You need to find a reputable company because sometimes the companies close down suddenly taking your money with them. Additionally, it will show that you worked with a credit counseling agency on your credit report. You can negotiate lower rates on your own, as well.

Loan Consolidation

Another option is loan consolidation. People choose loan consolidation to lock in a lower interest rate and to make payments more manageable. These loans are installment loans, which mean there is a set time period for paying off the loan. There are several dangers when choosing this option. The first danger is that many people do not address their spending habits, and continue to run up debt on the credit cards they just paid off. They end up in a worse situation then they were in before the consolidation loan. Another risk is when you use a home equity or second mortgage to pay off your debt, because it puts your home at risk if you default on the debt.

Debt Settlement

Debt settlement only works when you are already behind on your debts. In debt settlement, you negotiate a lower payment amount for the debt and the bank counts it as payment in full. Generally, you can negotiate the debt down to about twenty-five percent of the original debt.

You must make a lump sum payment for this method to work, and the debt will read settled on your credit report. A debt settlement company will accept monthly payments from you and set the money aside to settle the debts. These companies can suddenly close and take your money with them, as well, so be sure to do the background search before choosing a company. Additionally, you can negotiate the same settlement yourself and save money on the fees the company charges. It does hurt your credit score, but a settled debt is better than an outstanding debt. You will need to pay taxes on the amount that is forgiven in debt settlement.


Bankruptcy should be a last resort. If you are considering bankruptcy you need to find a bankruptcy attorney. He will help you determine if you should file a chapter seven or chapter thirteen bankruptcy.

He can also help decide whether or not you should reaffirm some debts such as your mortgage and car payment. If you choose to file bankruptcy it will adversely affect your credit. You will have a difficult time borrowing money in the future. If you lose your home in the bankruptcy you will not be able to buy a new one for several years.