5 Easy Types of Debt Relief Systems

Paying for a new home, car or a vacation may seem more like a wish than a goal if too much of your paycheck goes out to consumer debt. Debt elimination programs can work to your advantage and create some breathing room between your income and expenses. These programs also can get you out of debt years sooner and make the difference in thousands of dollars paid in interest.

Debt Management

A debt management company forms an agreement with the customer's creditors to lower interest rates and fees. The plan is explained to the client, who accepts or declines it. The debt management program starts with a single monthly payment made to the debt relief company. The company then makes a payment to the creditor. Creditors receive 100 percent of their money, so this has a positive impact on the client's credit score. The management company often provides support and resources to assist clients in managing their money so they're more likely to pay on schedule. Most companies have a minimum balance requirement, and the balance often needs to be with two or more creditors.

Unsecured Loan

The client applies for a personal loan from a lender, usually a bank or credit union, to pay off all his creditors to get a lower interest rate on the debt. The new deal will get the customer out of debt sooner with less money paid and provides for a single payment each month. An unsecured debt-elimination loan is usually capped at $25,000 for those with good credit.

Debt Settlement

With debt settlement, a client makes monthly deposits to a settlement deposit account in an amount she can afford. The client stops paying the creditors, and the settlement company negotiates with her creditors for a lower amount to repay. When settlements are reached with creditors, settlement payments are paid into an account the customer set up.

Credit Counseling

An agency will form an agreement with your creditors to lower interest and fees on your behalf. Once the client, settlement company and creditors reach an agreement on a payment plan, the plan goes into effect. The client pays the debt relief company, which then pays the creditor. Having the debt relief company there to manage the debt repayment gives creditors reassurance that they'll get their money each month.