Reduce Debt Faster

If you carry any debt at all, then chances are you have noticed hundreds of advertisements for different credit card debt reduction programs.  Of course, most advertisements for these debt reduction plans seem too good to be true and they often contain contradicting information.

Unfortunately, most of the advertisements usually are too good to be true.  Still, if you need debt reduction help, there are legitimate ways to get the help you need.  Let’s take a look at a few of your options to reduce debt, along with the pros and cons of each.

Debt Management Plans

A debt management plan is one form of debt reduction plan that is available through a credit counseling agency.  This can be a good option for you if you have very high interest rates or are having trouble paying much more than the minimum payments on your credit cards.  If you have fallen behind and have late fees or over limit fees, a debt management plan or DMP may be even more helpful.

With a DMP, the credit counselor works with your creditors and gets you lower interest rates, gets rid of fees, and in many cases gets you a lower monthly payment.  This one affordable payment allows you to pay your debts off much more comfortably, on better terms, and much faster than you could on your own.

A common misconception is that a DMP will do a lot of damage to your credit.  Some people even believe that it is comparable to bankruptcy.  This is not true at all.

Still, it is true that participation in a DMP can be shown on your credit report.  This means that you can be turned down for this reason if you apply for credit.  But the purpose of this plan is for you to get out of debt, so you should not be applying for more credit anyway!

You also have to close all of your credit card accounts that you place on a DMP.  This means that there is potential for a short term drop in your credit score.

The Bottom Line:  A DMP is not a good solution for you if you need to refinance a home, or if you need (and are able) to purchase a home or car in the short term.  A DMP is also not a good option if you have low interest rates AND the ability to pay your debt down on your own.  If either of these apply to you, there are better debt reduction strategies available for you.

Debt Settlement or Negotiation

The most commonly advertised option for reducing debt these days is debt settlement.  Also referred to as credit card debt negotiation, settlement companies do a great job of making this option sound like everything you could ever hope for.

We have already addressed some debt settlement pros and cons here, so I will not go too far in depth.  Read the previous article about settlement, and you will understand that it is a program that has many more drawbacks than you might realize.  I would never recommend debt settlement as a general option to get out of debt.

The Bottom Line:  Don’t fall victim to the hype and promises.  It sounds too good to be true because it is!  Avoid debt settlement companies at all costs.  If you are seriously considering it as an option, at least do your research and know what you are getting in to.

Bankruptcy

Bankruptcy has a lot of negative consequences, but it exists as a last resort for people who need it.  You should always try to get out of debt and exhaust your other options first.  However, the bottom line is that some people simply get in a situation where they cannot pay off their debts.  When you are out of options, bankruptcy may be able to give you the relief you need.

Novation, Debt Cancellation, and Elimination

There are a few conspiracy oriented websites that claim you can legally cancel your debts and not have to repay them.  Most of these sites make long legal sounding arguments to convince you that this is true.  As much as you may wish this were possible, it is definitely a scam.

Bottom Line:  Run away! Anyone claiming they can legally cancel or simply wipe out your debt (except through bankruptcy) is lying and scamming you.  Don’t end up in a worse position by falling for this junk.

How to Get Out of Debt

If you are looking for answers on how to get out of debt, there is help available.  It is important to realize that getting out of debt is not a simple, quick and easy process.  There is no magic bullet, and it will take some effort on your part.

If you are ready to commit yourself to a better financial life, start by doing some learning on your own about personal finances.  If personal finance is a subject that is over your head, find a friend you can trust or consider speaking to an accredited, non profit credit counselor.  Still, your best bet is to gain some knowledge and direction for yourself first.  Then you can figure out the best direction and where best to turn for help.

As always, if you have questions about how to get out of debt, feel free to leave a comment.