How to Reduce Debt With Credit Counseling Information & Resources

Nonprofit credit counseling agencies can offer unbiased advice for reducing your debt. The agencies will discuss all your options, but may not endorse debt settlement or bankruptcy -- two debt elimination strategies for avoiding much or even all your unsecured debt at the expense of your creditors. Up to 80 percent of your credit card debt can be eliminated through debt settlement, according to SmartMoney.com, and bankruptcy can eliminate all your unsecured debt. The only way to reduce secured debt, such as a mortgage or auto loan, is to pay down the balance.

Instructions

1

Find a local nonprofit credit counselor via the U.S. Trustee Program website. The agency maintains a database of government-approved credit counseling agencies (see Resources). Make an appointment with a counselor and take a recent copy of your credit report. Get your credit report from Annual Credit Report, a website authorized to issue free credit reports under the Fair Credit Reporting Act (see Resources).

2

Show the counselor your list of debts from the credit report, and state that you wish to discuss every legal option for reducing the unsecured debt. In addition to debt settlement and bankruptcy, discuss options for lowering your interest rate through discussions with the card company. The savings on the finance charges could help you reduce your debt faster.

3

Talk to the counselor about debt management plans, which credit counseling agencies often recommend. The Federal Trade Commission (FTC) reports that the plans give the agencies control over your monthly budget. The agency will accept a lump sum from you each month and will use the money to make payments on all your credit card and other unsecured accounts. You must agree to pay a management fee each month and remain in the program about four years. During that period, the counseling agency will contact your credit card companies to request lower interest rates and even a reduction of the balance through a waiver of some finance charges.

4

Discuss other options, such as making changes to your budget so that you can devote more money to paying down debt. Consider all the strategies outlined by the counseling agency and then choose the right one for you to reduce your debt.