Help With Debt Reduction

Debt reduction can take many forms. Steps such as debt settlement and bankruptcy either seriously reduce or eradicate debt but they mark the consumer as a bad credit risk for seven years. Consumer credit counseling agencies can also negotiate debt down a bit and help consumers with a service to pay off debts. For DIY fans, there are budget software programs and online debt reduction calculators to help.

Debt Settlement

Debt settlement is an agreement by which you pay a lump sum amount to creditors that is a fraction of what you originally owed. Some consumers make their own debt settlement arrangement with creditors while others hire debt settlement companies that often charge between 14 and 18 percent of the face value of the debt. It is important to find a reputable debt settlement company if you use one, to avoid fraud and to get the best settlement deal. Debt settlement is a black mark on your credit record.

Bankruptcy

Consumers who simply cannot pay their debts can file either Chapter 7 or Chapter 13 bankruptcy. Chapter 7 bankruptcy wipes out debts and often costs less than debt settlement. Chapter 13 bankruptcy is for people whose income is too high to declare Chapter 7 and requires a five-year payoff plan for debt. Credit counseling is required before consumers are allowed to file bankruptcy. Bankruptcy damages credit for seven years.

Credit Counseling

Consumer credit counseling agencies often can reduce debt loads a bit when they enter into debt management plans with consumers. They can negotiate down interest rates and fees. Consumers pay these agencies a small fee, usually $40 or less, to pay their monthly unsecured credit bills. Consumers pay the agency the money, then agencies pay creditors. MSN Money recommends using counselors with either the Association of Independent Consumer Credit Counseling Agencies or the National Federation for Credit Counselors.

Debt Payoff Plans

Budgeting software can help consumers figure out a plan to pay off their debts by keeping track of where the money is going. Some recommended software includes Quicken and You Need a Budget. There are also debt reduction calculators on sites such as Bankrate and MSN Money that can help keep track of debts and progress in paying those off.