It's an unfortunate fact of life that it's always easier to get into debt than to get back out of it. While there are ways to quickly reduce the amount of debt you owe, it's often at the risk of your credit score or your financial well-being. Dumping debt into another loan, debt settlement or bankruptcy may get you out of debt, but it often comes at a price.
Switching Credit Cards
One reliable method for reducing your debt quickly is to transfer high-interest credit card balances to a low- or no-interest card. The good news is you reduce your debt overnight by getting rid of steep credit card interest fees. The bad news is the days of low- and no-interest cards are largely behind us.
Even if you can switch to a card with a lower interest rate, take care when doing so. Opening new accounts can ding your credit score, as can using up most or all of your credit line by transferring balances. And, if you don't make payments on time or are late on another payment, you could see that low interest rate disappear.
Home Equity Loans
If you've got enough equity in your home, a home equity loan can allow you to pay off high-interest debt like credit cards or high-payment debt like medical bills in a lump sum, then pay it off at a low interest rate over a period of years.
The recent financial meltdown has made qualifying for a home equity loan harder than ever. That's besides the fact hat if you are unable to pay, your home is on the line.
Debt Settlement/Negotiation
It sounds like a dream come true -- a debt settlement or negotiation firm tells you your debt can be settled for pennies on the dollar. Debt settlement is actually a nightmare, destroying your credit for years to come. Debt settlement often means letting your bills go unpaid until creditors are willing to settle for less than the amount owed. Late payments and paying less than the full amount of a debt are black marks on your credit that can last up to seven years.
Bankruptcy
Filing for bankruptcy can reduce or eliminate your debt quickly, but only if you qualify for Chapter 7 bankruptcy, which erases most debt. Those who do not meet the guidelines for Chapter 7 bankruptcy, however, must file Chapter 13, which means repaying some or all of your debts over a period of several years.
Although Chapter 7 bankruptcy can make most or all of your unsecured debt go away, it's at the price of your credit, often knocking hundreds of points off your credit score and staying on your credit report for up to 10 years, while Chapter 13 will haunt you for seven years.
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