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Debt Relief: Compare Your Top Debt Relief Options

Debt Relief
HIGHLIGHTS
  • Understand that there is no one-sized-fits-all debt solution.
  • Review each debt solution, to find the right one for you.

Tips to Learn About and Compare the Top 6 Debt Relief Solutions.

Does your debt make you want to scream? You are not alone.  Debt Relief might be the solution!

Americans carry more than $850 billion in credit card debt, according to the Federal Reserve. Debt is a national problem, but also an individual one, too. We may aim to pay off our credit card debt in full each month, but too many of us don’t succeed. Rising costs of living, stagnant incomes, unexpected life events, and undisciplined spending are common factors that lead to growing numbers of Americans struggling to get out of debt. Factor in the high interest rates that creditors are allowed to charge and finding a way to manage debt effectively can be a very difficult task.

An important first step to achieving debt relief is to look at the different ways you can solve your debt problem, whether working on your own or with a professional debt relief firm.

Quick tip #1:   Get a no-cost, no obligation analysis of your debt options from a pre-screened debt relief provider.

Overview of Debt Relief Options

It is challenging to compare each debt relief option side-by-side, since each solution is unique. Some debt relief options require taking out a loan, some require home ownership, and some are very aggressive and designed only for consumers with serious financial hardship. We compare the different debt relief options and put everything on the table, so that you have the information you need to make the best decision for your own needs. If you do your homework, then you can find the right debt relief solution for your unique financial situation.

 

Your Debt Relief Options Explained: Debt Consolidation, Consumer Credit Card Counseling and More
 

Mortgage Refinance

You may be able to consolidate your debts with a home equity loan, mortgage refinance or other debt consolidation loans. If you are confident that you will be able to make the payments without building more credit card debt, debt consolidation refinance loans can be an excellent path to reducing your payments and lower the total cost of paying off your debts. To qualify for a mortgage refinance loan, a homeowner usually must have excellent credit and significant equity accumulated in the home. You can learn about refinancing at Bills.com or even apply with one of Bills.com’s approved lenders.

Minimum Credit Card Payments

Making the minimum monthly payments on your credit cards is a dangerous financial strategy. It may like you have no choice but to push a growing problem off to another month,  especially if you are struggling to make even your required minimum payment. However, if you have high interest rates or high credit card balances that have become a problem, it's time to figure out how to get off the debt treadmill.

We recommend consumers pay off their debts in full each and every month, especially credit card and high interest revolving debt. If you cannot manage to do that, make sure that you are aware of the true lifetime cost of that debt and what all of your debt payoff options are, and do not just blindly stay on the treadmill of making minimum payments.

Credit Counseling

Credit counseling is a debt relief program that starts with a detailed financial review. If your debt problems are serious and best resolved with outside help, your credit counselor will suggest that you enroll in a debt management plan (DMP). In a DMP, the credit counseling program will obtain interest rate concessions from your creditors. Lower interest rates are the primary benefits of a credit counseling program. Credit counseling may also lower your lower monthly payment to service your debts, but usually not significantly.

A Credit counseling debt management plan is a very common type of debt consolidation program. In it, you make one payment directly to the credit counseling agency. The program then distributes that payment to your different creditors. If a reduction in high interest rates are not going to solve your debt problems, credit counseling is not likely the best debt relief option. Credit counseling is like aspirin for a mildly sick patient, where a little help and medicine solves a real pain or financial problem.

Paying Back 100%, Plus Interest

It is important to understand that in a credit counseling program, you are still repaying 100% of your debts, even though you are doing so with slightly lower monthly payments. On average, most credit counseling programs take around five years. While most credit counseling programs do not impact your FICO score, being enrolled in a credit counseling debt management plan does show up on your credit report, and, unfortunately, many lenders look at enrollment in credit counseling akin to filing for Chapter 13 bankruptcy — or using a third-party to re-organize your debts. You can learn more about this debt solution at the Bills.com section devoted to credit counseling.

Debt Settlement

Debt settlement services offer to negotiate and settle your debts for less than you owe, many times reducing debts by as much as half, before provider fees. Debt settlement is an option for people who cannot afford their monthly payments, and who are not worried if their credit rating will be negatively impacted during the program. It is important to be aware that you are not making monthly payments and staying current on your debts while enrolled in a debt settlement program, so be aware of the credit impact and the potential collection harassment from your creditors. Debt settlement is also a very aggressive form of debt consolidation, and it is akin to chemotherapy for a seriously ill patient — it will hurt, but will hopefully kill the cancer and get you financially stable and healthy again quickly.

Unlike other forms of debt consolidation, debt settlement is based on the future resolution of your accounts, which means that results vary significantly and it is very important to work with a qualified and accredited provider.

Bankruptcy — Chapter 7 and Chapter 13

Bankruptcy should be your last choice for debt relief,  because it will severely damage your credit, remaining on your credit report for 7 to 10 years. Also, depending on which type of bankruptcy you file, you could be forced to give up some of your assets or assigned a long-term payment plan. Congress changed the bankruptcy law in 2005, making it much harder to qualify for a Chapter 7 bankruptcy, forcing many people to file for a Chapter 13 bankruptcy, which is really a repayment plan.

Quick Debt Relief Options Evaluation Decision Tree

Here are four fast tips for your own quick Debt Relief Evaluation:

  1. If you have perfect credit and have equity in your home — consider a mortgage refinance.
  2. If you can afford a healthy monthly payment (about 3% of your total debt each month), you want to protect yourself from collection, and do not want to go delinquent — consider Credit Counseling.
  3. If you want the lowest monthly payment and want to get debt free for a low cost and short amount of time, and you are willing to deal with adverse credit impacts and collections — then evaluate Debt Settlement.
  4. If you cannot afford anything in a monthly payment (less than 1.5% of your total debt each month) — consider Bankruptcy, to see if Chapter 7 might be right for you.

Bills.com makes it easy for you to apply for debt relief with pre-screened debt resolution providers.

Ways to Manage Debt on Your Own

If you have more credit card debt than feels comfortable, but it has not reached the point where it is a serious problem, here is some quick and simple advice on how to manage your own self-directed credit card pay-off strategy:

  1. Avoid paying minimum payments each month, if possible. If you can pay more than the minimum payment, you will save hundreds or thousands in interest expense. Credit card interest rates can go as high as 29%-39%! The larger your monthly payment, the faster you will pay off the debt and the less interest you will pay. For example, take a credit card debt of $10,000 with a 22% interest rate. If you continued to only make the minimum payments (4% of the monthly balance), it will cost you $18,216 and take 14 years to become debt free, largely because the minimum payment drops each month as you pay down your debt.
  2. Paying a constant amount each month could save you thousands and will clear out your debt in far less time than paying the minimum amount. For the same scenario above ($10,000 debt and 22% interest rate), a constant payment of $400 per month would cost only $13,094, taking you 3 years to become debt free.

Snowball or Avalanche

If you carry balances on multiple credit cards and can afford more than the minimum payment, you should consider the following strategies. To be effective, both strategies require you to continue paying the same monthly amount towards your debt until all debts have been paid off. Once a single credit card has been paid off is not the time to reduce how much you should pay towards your total debt. Maintaining the same monthly amount (or even increasing the pay-down amount) will help you get out of debt faster and at a reduced cost.

  1. Avalanche Pay Off — The avalanche method involves paying off your credit cards in the order of the highest interest rates. Once you have decided how much you can afford each month, allocate enough money to only pay off the minimum payment on each credit card. Then apply all the remaining funds to paying off the card with the highest interest rate. Once the first credit card has been paid off, apply every dollar you were using to pay off the highest-interest card and add it to what you were already sending to the second highest-interest credit card. Keep following this strategy and continuing paying the same amount each month towards your debt until all debts have been cleared. Using the avalanche method can result in greater savings by paying less interest in the long run.
  2. Snowball Pay Off — The snowball method involves paying off the lowest debt amount first. Like the avalanche method, budget enough money to pay off the minimum payment on all cards. Then apply any remaining funds towards paying off the credit card with the lowest balance. Once you have paid off the first credit card, continue paying the same monthly amount you started with. Follow the same strategy as the first credit card: Pay only the minimum payments on all other cards while using all the remaining funds to pay off your second lowest debt. Although the snowball method may be more costly than the avalanche method, seeing even a small debt eliminated often helps motivate people to stick to the discipline of paying down debts.

You are armed with the right tips and solutions to start your journey to debt freedom. Get on the right path and stay committed to getting rid of that nasty credit card debt, so you can build a bright, debt-free financial future. If you want to see a very innovative side-by-side comparison of the various solutions to getting out of debt, including a chart comparing payments, cost, time and rates of success for the different solutions, then read the Bills.com Debt Options Whitepaper.

Here are simple and quick tables to evaluate debt relief options:

Estimated Total Cost to Resolve $20k in Credit Card Debt
Option Total Cost Monthly Payment
(% of debt)		 Monthly Payment Annual Fees
Mortgage Refinance $40,000 0.5-1.0% $100-$200 4.0-7.0%
Credit Card Pymts. $63,000 3.0-4.0% $600-$800 19.9-29.9%
Credit Counseling $30,000 2.0-3.0% $400-$600 12.0-14.0%
Debt Settlement $13,000 1.5-2.0% $300-$400 5.0-7.0%
Ch. 13 Bankruptcy $14,000 N/A Varies $2,000
Ch. 7 Bankruptcy $1,500 N/A N/A $1,500

Option Typical Length Completion Rate
Mortgage Refinance 30 yrs N/A
Credit Card Pymts. 10-30 yrs N/A
Credit Counseling 5 yrs 21-26%
Debt Settlement 3-4 yrs 40-45%
Ch. 13 Bankruptcy 5 yrs 30-35%
Ch. 7 Bankruptcy 6 mos N/A

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Comments (21)


Brittany B.
Indianapolis, IN  |  October 11, 2011
I have over 140,000 dollars in student loan debt and a car loan included in there. I will have my car paid off this year but struggling on how to go about making my loans more affordable. Most are private loans so I cannot just consolidate them but my payments when they all kick in is going to be like 800 to 1000 a month and cannot afford that right now, im still in school and a single mom and am lost because of course filing ch. 7 or 13 is not an option on loans. And my credit isnt too hot. What advice do you have?
Bills.com
October 12, 2011
It is not accurate that you can't consolidate private student loan debt. It can be difficult to qualify for the loan consolidation, but it is worth looking into.

You are also incorrect about bankruptcy. Even if you can't discharge the debt in a Chapter 7 bankruptcy, a Chapter 13 could allow you to repay the loan with a lower monthly payment. In a Chapter 13 bankruptcy, the court will decide how much you can afford to pay each month.

Once you finish school and the loans come due, start by speaking to your lenders, to see what you can work out with them, when you disclose what you earn. Also look into both the private student loan consolidation and bankruptcy, so you know whether either of those solutions can help you.
Quick Q.
Darragh, PA  |  October 07, 2011
You may make additional issues, as well as ones with the tax authorities, if you are incorrectly signifying that your wife is receiving income for work that you do.
Dan S.
Siloam Springs, AR  |  August 23, 2011
I am under a credit card payroll garnishment order - in my name only - at a part-time job. If I quit and have a contract labor income at another place and if that employer makes the check payable to my sales company under my wifes ss#, what kind of problem do you see? Thanks - Dan
Bills.com
August 23, 2011
You may create further issues, including ones with the tax authorities, if you are falsely representing that your wife is receiving income for work that you do. Were I in your shoes, I would discuss this with an attorney, before trying to evade a garnishment as you described.
John K.
Chicago, IL  |  August 16, 2011
Can you guys please do these debt relief tools for the US Government? Seriously, don't we need some bankruptcy alternative debt solution for Federal debt pretty darn soon?! Maybe all the countries should consolidate their debts.
Bills.com
August 17, 2011
It is interesting to read your comment, just two days after Bills.com wrote that consumers can learn from the ways that different countries are dealing with their debt crises how best to deal with their own debt problems.

One advantage that consumers have is that an individual is a small ship that can turn quickly, after the captain makes a decision. Governments, on the other hand, have many voices trying to give orders and each one may have different goals.
Walter R.
July 13, 2011
What do you think is the best debt relief option for me: I owe a lot, about $100,000 or more in debt and cannot afford my payments. I looked into bankruptcy and there is no way that i can qualify for a chapter 7 bankruptcy. Debt advice is greatly valued and appreciated Mr. Bill.
Bills.com
July 14, 2011
I lack enough information about your situation to give you a specific recommendation.
  1. If your main problem in paying down your substantial debt is high interest rates, then look into a credit counseling program.
  2. If you need a principal reduction to pay off your debts, look into debt settlement.
  3. If neither of these options seem right for you and you cannot sustain your payments, you may have to opt for a Chapter 13 bankruptcy.

To help you choose which option is best for you, use the free Bills.com Debt Coach tool.

Janis I.
February 22, 2011
I was just turned down for a debt consolidation loan. I tried to refinance my home to consolidate debt, but there is not enough equity. I tried to get an unsecured loan, but the interest rates were as high as my credit cards, so that wouldn't help me at all. I am considering the other options you listed. I am not behind on my payments. If I am making all of my current payments, but am not paying down my debt and feel like I am going to be stuck paying interest (which they hiked to 21% last year, even though I never missed a payment) forever. What do you suggest? Thanks!!!
Bills.com
February 22, 2011
I commend you for looking at your various options for getting out of debt. As a debt consolidation loan is not an option, I suggest that you look at two specific options.
  1. A Consumer Credit Counseling Service. A credit counseling program will obtain lower interest rates for you, speeding up the time it takes for you to get out of debt. If you are paying high interest now, a credit counseling program would be a very effective way to proceed. A credit counselor will be able to review your debt load, let you know what rates it can obtain from your creditors, and tell you how long it will take you to pay off all the debts you enroll in the program. Your credit score is not affected by the credit counseling program, though during the time you are enrolled in the credit counseling program you may be turned down for new lines of credit, as prospective creditors will be able to see that you are using the services of a third party to help you manage your debt.
  2. You could also look at debt settlement. In a debt settlement program, the firm you hire negotiates reduced dollar payoffs from your various creditors. Debt are often settled for 40-50% of what you owe. Debt settlement will get you out of debt in the shortest time, while avoiding bankruptcy, compared to other options. Reputable debt settlement firms only take on clients who have a financial hardship. You will have to speak with someone at a debt settlement firm, to see if that option will work for you. Make sure that you hire only a debt settlement firm that is complying with new Federal Trade Commission rules that went into effect in late 2010. These rules were created to protect the consumer. For instance, anyone now enrolling in a debt settlement program is not required to pay a service fee to the settlement firm until his or her account has been settled. This makes settlement an even more attractive option for the consumer.
Nathan B.
Rumford, ME  |  February 18, 2011
Your tips are helpful and a good debt video, but the evaluator for options to relieve debt is perfect for me. Makes it simple and easy to compare what seemed like pretty confusing debt options. I thought that bankruptcy was my only choice since i finally gave up on my credit counseling program payments that are just too much for me and my family. I'll give it another try with debt resolution and let you know if can make it this time to debt freedom.
Bills.com
February 22, 2011
We are glad that our information helped you. Please keep us posted on how your efforts progress.
Martha M.
Forest City, IL  |  February 18, 2011
Are there places to get loans to relieve debt? Or do you just have to sign up to pay off the debts thru a debt settlement or credit counseling program? I don't really want to default, but I cannot afford my debts and my payments.
Bills.com
February 18, 2011
To qualify for a loan, you will be judged on your ability to repay the loan. Lenders look at your income in comparison to the debts you have to service, your credit score, and whether you have any security or collateral to offer. If you currently are having problems paying your debt, finding another lender to work with you can be difficult, as the new lender does not want to be stuck with a borrower who can't repay the loan. It is far easier to borrow when you have collateral. Do you own any asset that you could pledge as security to a lender? For instance, a person can use the title to a car he or she owns and get a loan.

I think you are best served by looking at every alternative, so you can find the best option for your specific circumstances. How much you can afford to pay each month is one important factor. How much debt you are carrying and whom you owe is also important. I suggest that you speak with a representative from a debt settlement firm, a credit counseling firm, and with a bankruptcy attorney. After looking at each of these options, please feel free to call one of my Money Coaches for a free consultation to discuss the pros and cons of the different options. You can reach a Money Coach at 888-849-0170.
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