Debt Relief & Cures

When you're in debt, you may feel like digging yourself out is an impossible task. However, there are several methods for eliminating debt -- which method you choose depends largely on how much debt you have and how you have been able to handle it up to this point. No matter which debt elimination method you choose, you must be completely committed to keeping your debt paid off to avoid ending up in the same situation down the road.

Debt Consolidation

For those who have multiple debt payments each month, a debt consolidation loan may help to alleviate some of the stress by bundling the debt under one loan. The loan pays off the current balances, allowing you to make a single monthly payment. However, although debt consolidation loans are often advertised at very low interest rates, those rates are usually reserved for those with extremely high credit scores. If you are having problems with debt, it's unlikely that you'll qualify for these rock-bottom rates. Check with both your bank and local credit unions to compare rates for the best deal.

Debt Management Plan

Debt management plans (DMPs) are reserved for those who have already been delinquent on payments to their debt. You may only take on a DMP if one has been recommended to you by a credit counselor. Under a DMP, your credit counselor will negotiate with your creditors for lower interest rates and/or lower payoff balances. Then, your counselor will create a timeline so that you know exactly how long it will take to pay off your balances. Instead of making payments to your creditors, you'll make payments to the credit counseling company. The Federal Trade Commission recommends using the Association of Independent Consumer Credit Counseling Agencies or the National Foundation of Credit Counseling websites to make sure your credit counseling company is reputable.

Bankruptcy

When you declare bankruptcy, your debts may be wiped out; however, your entire credit history will be scarred and may be erased. That means that you have to start from scratch with a big negative mark on your record. While this may be a "cure" for your debt, it could create other problems for you for the 10 years that the bankruptcy stays on your credit report. In addition to lenders, landlords and prospective hiring managers may be wary of pushing your application through if they check into your credit history. Before declaring bankruptcy, it's vital to explore all of your options with a credit counselor.

Considerations

You may find that the true cure for your debt is to take matters into your own hands by budgeting and doing your own negotiations. Create a budget by comparing your current expenses with your income, and see where you can cut back to contribute more to your debt each month. Also, you may be able to get a lower interest rate on your credit cards simply by asking. Collect any credit card offers you're receiving in the mail to get an idea of what kind of interest rates you might aim for, then call your current creditors and ask for a reduction. You may be able to get lower rates through this method than you would on a consolidation loan.