Free Debt Reduction Plans

There are a number of plans for reducing debt, and you can manage them all yourself for free. Getting help from agencies almost always results in a fee, including debt reduction plans offered by nonprofit credit counseling agencies. Nonprofit agencies such as those affiliated with Consumer Credit Counseling Service charge about $50 a month to manage your finances and negotiate with your creditors. Handling the debt reduction plans yourself will help you learn more about your finances and provide the satisfaction of having fixed your financial problems on your own.

Do-It-Yourself Settlement

You can learn how to reduce debt through debt settlement and in other ways by taking financial literacy classes. The classes are often free and are offered by nonprofit credit counseling agencies and other organizations. Self-directed debt settlement allows you to reduce your debt by paying off balances for less than the full amount owed. Generally, debt settlement becomes possible when you are three or four months behind and your account is about to be charged off and sold to a debt collector. Sometimes credit card and other debt can be settled for as little as 20 percent of the balance, according to The New York Times. However, settlements for around half the balance are more likely. You can engage in debt settlement for free by contacting your creditors directly.

Debt Management Plans

Debt management plans are offered mostly by credit counseling agencies. But you can do the same work yourself. The plan involves contacting each of your creditors and explaining your financial situation. You must be willing to share all your financial information as you convince the creditors to lower your interest rate and waive fees and even some finance charges over about four years--the length of a typical debt management plan offered by a credit counseling agency. Your goal will be to work with the creditors on a plan that will eliminate or greatly reduce your debt over the four years.

Hardship Plans

Hardship plans are shorter versions of debt management plans. Many credit card companies and creditors will offer free hardship plans to customers trying to recover from a financial setback. Typically the plans allow for your interest rate to be waived for up to a year and your minimum payment to be reduced to as little as 1 percent of the balance. The hardship plans contribute to your debt reduction primarily through the reduction of the interest rate. Despite the offer of lower minimum payments you can pay more over the 12 months and reduce your debt while the interest rate is lower.