Programs to Eliminate Debt

The only way to eliminate your debts is to pay them off--perhaps for less than the full amount due--or to eliminate them through bankruptcy. Debts are usually never completely forgiven by creditors, and there are not any government grants for eliminating personal debt. Nonprofit credit counselors, including Consumer Credit Counseling Service agencies, recommend that you create a long-term strategy for eliminating debt and stick to your plan.

Budgeting

The Federal Trade Commission says simply creating a budget is a good first step toward eliminating debt. The FTC says you should tally all your monthly income and expenses, then determine how much expense you can eliminate by cutting back on cable television, cell phones, eating out, and other discretionary items. The savings could then be used to make extra payments on your debts as part of a debt elimination program. You could also pay debt down further by taking an extra job or seeking a raise or more overtime from your current employer.

Debt Management Plans

Nonprofit credit counselors will also help you build a budget--and perhaps a stricter budget than you would create for yourself. With debt management plans the counselors take over the payment of your debt. You pay one monthly fee covering all of your debts, and the counseling agency mails out monthly checks. The agencies will also ask your lenders to lower your interest rates and reduce your balance by reversing some of your finance charges and fees, such as late payment fees. You're asked to remain in the debt management program for about four years while your debt is eliminated or significantly reduced. During that time the counseling agency will keep you on a strict budget so that as much money as possible goes to your creditors.

Debt Settlement

You can eliminate your debt by paying less than the full balance--if your creditor agrees. Debt settlement is available only on unsecured debts such as credit cards. Many times creditors would rather settle with you than sell your account to a debt collection company, often for pennies on the dollar. According to The New York Times, some card companies will settle accounts for as little as 20 percent of the balance. However, settlement agreements for around half the balance are more likely. The FTC says you should avoid for-profit debt settlement firms which charge high fees and may provide unsatisfactory results. Instead, you should contact your creditors directly to discuss settlement opportunities.

Bankrtuptcy

Bankruptcy is the most extreme program for eliminating debt. Unsecured debt can be eliminated in just months under Chapter 7 bankruptcy--the simplest of the two primary forms of personal bankruptcy protection. People with modest income and no real estate are the most likely candidates for Chapter 7. The other option, Chapter 13, is more complex and generally takes five years of monthly payments to complete. During that time your finances will remain under the control of a bankruptcy trustee, who will make monthly payments to your creditors.