Consumer Debt Reduction Programs

Credit counseling agencies and companies are available to help consumers with debt reduction. While some of these agencies are reputable nonprofit agencies paid for by donations as well as consumers and others are for-profit companies whose reputations are often negative. Credit counseling may be the first stop to help consumers with debt reduction. Bankruptcy, which in some cases erases unsecured debt, should be the last resort.

Credit Counseling

The first step once you've determined you're in over your head is to visit with a consumer credit counselor. Those allied with the Association of Independent Consumer Credit Counseling Agencies or the National Federation for Credit Counseling both have bylaws stating that they must help you even if you don't have the money to pay. They talk to you on the phone or in person about your financial situation and determine if they can work with you to create a plan to pay off your debts. Their agents are accredited by a third party and they're required to look at your whole financial situation and create a plan based on your needs, not selling their products.

Debt Management Plans

If the situation warrants, credit counseling agencies help you create a debt management plan by which you pay them a specified amount monthly and they pay your unsecured debts. They may ask a small fee for this service, usually less than $50 a month. They also require you to cut up your credit cards. In return, they negotiate down interest and fees. The debt management plan ultimately can get you out of debt, but often requires consumers to live on a fairly strict budget until the debt is paid.

Debt Relief Programs

Many companies advertise debt relief, which could range from debt consolidation to debt settlement, or paying a fraction of the debt, to bankruptcy. Many of these companies have bad reputations for taking the client's money and stalling on paying off the debts or not getting as good a settlement arrangement as they promised, while charging high fees. MSN Money and the Federal Trade Commission both warn that if an offer sounds too good to be true, it is.

Bankruptcy

In bankruptcy, consumers essentially throw in the towel on unsecured debt. Bankruptcy used to be taboo, but has become much more common since 2009 when the international economy began to sink. People who have high incomes might have to file Chapter 13 bankruptcy, which requires them to pay off their debts within a specified amount of time. Those with lower incomes can often file Chapter 7 bankruptcy, which eradicates their debts but may cause them to sell certain possessions that are not exempt either under federal or state law. They are also not able to get credit for seven years after filing.