- The right type of debt help depends on the severity of your financial hardship.
- There are several do-it-yourself solutions, including debt snowball and credit card balance transfer.
- If you are struggling, look for professional debt help, including credit counseling, debt management, or debt relief solution.
Debt can often feel insurmountable — but it doesn’t have to. If you’re tired of making payment after payment to see only a budge in your balances, it might be time to seek professional debt help.
A pro can give you the right tools to manage your debts, and they can even customize a path to help you pay them down more effectively. Are you ready to get help with debts that are holding you back? Here’s what you need to know.
What kind of debt help is out there?
Debt help comes in several forms. They range from simple counseling and budgeting services to more hands-on tactics, like negotiating with your creditors.
Here’s a quick synopsis of the various forms of debt help you can seek:
- Credit counseling: A credit counselor can offer guidance on paying down your debts. They'll look at your full financial picture, including your income, credit card balances, loans, and more, and advise you on how to best manage them. They can also assist with budgeting, improving your credit score, and achieving other financial goals you might have. Use this guide to find the right credit counselor for you.
- Debt management plans: Debt management plans are tools that credit counselors or other debt professionals use to help you pay off your debts within a certain timeframe. With a DMP, you'll pay your credit counselor a monthly fee, which they'll then use to pay your various creditors. Often, creditors will agree to reduce your interest rate or waive fees for borrowers on DMPs. You may need to agree to stop using your credit cards and avoid new debts to get on a DMP.
- Debt settlement: Debt settlement is when a debt professional negotiates a reduced payoff amount with your creditors. You’ll typically need to deposit money into a designated savings account each month. When the balance meets a certain threshold, your debt professional will pay the creditor an agreed-upon settlement amount and close out your debt.
- Debt consolidation: Debt consolidation is when you use a single loan to pay off all your debts. This strategy rolls them into one, making it easier to pay each month, and it often reduces your interest costs. Consolidation is often a smart move if you need help with credit card debt. (Credit cards typically carry much higher interest rates than loans, so consolidating can save you on interest).
- Debt refinancing: Refinancing replaces your debt with a new one — usually with a lower interest rate or different terms. For example, if you’re having trouble making your car payment, you might refinance your loan into a longer-term one. This approach would spread your balance out more and reduce your monthly payments.
The right type of debt help depends on the severity of your debt problems and the types of debt you have. For example, if you need help with credit card debt, consolidation may be a good choice. If you have a variety of debts, a DMP or settlement plan may be more fitting. If you're unsure which option is best for you, consider speaking to a credit counselor or financial advisor. They can offer you personalized advice for your specific situation.
Where can I get debt help?
Credit counseling agencies and debt relief companies both offer help with debt. Credit counselors are often nonprofit organizations that offer free or low-cost services. Keep in mind, though: They are limited in the help they can provide.
Debt relief companies will charge a fee, but they often deduct it from the savings they secure on your behalf (if they settle your debt for less, for example). Always make sure you understand the payment structure when working with a debt relief company. A legitimate one will not charge you an upfront fee nor guarantee any results.
In some cases, you may be able to get debt help from your bank or credit union. These services will typically look more like credit counseling, though they may be able to recommend options for consolidating or refinancing your debts through their institution.
DIY debt help
You don’t have to use a professional to deal with your debts. There are quite a few ways to pay down or even reduce your debts yourself — as long as you have discipline and are committed to the task.
Here are just a few of the strategies you might use to DIY your debt relief:
- Snowball method: This is a debt payoff method that focuses on your smallest balance first. You put all extra income toward that lowest debt while making minimum payments on all the rest. Once you've paid off the smallest balance debt, you put that extra money toward the next smallest one and so on until you've paid off all of your balances.
- Avalanche method: With this debt payoff method, you focus on the debt with the highest interest rate first. After you’ve paid that balance off, you move to the next-highest-rate debt and so on. This strategy reduces your long-term interest costs the most but can be harder to stick to than the snowball method. (The snowball method offers quick wins that can keep you motivated).
- Balance transfer card: A balance transfer card is an option if you need help with credit card debt. You apply for a zero-interest balance transfer card and then transfer all the other card balances to the new card. There’s typically a small fee for this (usually 3% to 5% of the amount transferred), which is added to your balance. Balance transfer cards allow you to roll all your credit card balances into one, and they can often significantly reduce your interest costs too. Just make sure you pay off the balance before your zero interest rate expires (typically around 18 to 24 months).
- Refinancing and consolidation: You don’t need a pro to consolidate or refinance your debts. You’ll simply need to choose a lender, secure the lowest rate possible, and use that loan to pay off your existing debts. If you go this route, make sure to compare a few different lenders. Rates and terms can vary quite a bit between companies.
Bankruptcy is also something you can explore and possibly take on yourself, but only after exhausting all other options. Though bankruptcy can wipe many of your debts clean, it can also mean losing your assets and ruining your credit. Bankruptcies remain on your credit report for up to 10 years, which could make it difficult to get a loan, buy a house, secure a rental, or even get a job in some industries for quite a while.
How do I know I need to seek help with debt?
If you’re having trouble making your monthly payments, or you’re only making minimum payments and never making a real dent in your balances, then you probably need additional help with debt. You might start by speaking to a credit counselor who can point you toward the right strategies for your unique situation. If you have a financial advisor, they can assist too.
What are the best strategies to help with credit card debt?
There are a few options for dealing with credit card debt. Consolidation is often a good strategy, as it allows you to roll your cards into one balance and, often, lowers your interest rate too. You might also consider transferring your card balances to a zero-interest balance transfer card. Just remember: The zero interest rate will expire at some point, so make sure you have a plan for paying down your balance before that date rolls around.
How do I avoid debt relief scams?
Scams are sadly common in the debt help industry, so be diligent when choosing who you will work with. Be wary of any company that requires upfront fees, uses aggressive or unsolicited marketing tactics, or makes lofty guarantees about reducing your debts or repairing your credit. You should also check the Better Business Bureau and Trustpilot (for complaints and customer ratings) before working with a debt relief company.
What will I pay for getting help with my debts?
The cost of debt help depends on which services you use. Credit counseling is often free or very low cost, particularly if you use a nonprofit counseling agency or come from a low-income household.
Debt relief companies will typically take a fee from the money they save you, or, in some cases, they will get paid by your creditors. Always ask upfront what a credit counselor or debt relief company charges before beginning work with them.
What’s the first step to paying off my debts?
If your debts are starting to feel unmanageable, the best thing you can do is stop adding to your balances. Cut up your store cards, and hide your credit cards in a locked box in the attic. Do not apply for new cards or loans, and avoid big-ticket purchases if you don’t have the cash to cover them outright. Increasing your balances will only make your debt situation more challenging.
Mortgages, credit cards, student loans, personal loans, and auto loans are common types of debts. According to the NY Federal Reserve total household debt as of Q4 2023 was $17.503 trillion. Housing debt totaled $12.612 trillion and non-housing debt was $4.891 trillion.
A significant percentage of people in the US are struggling with monthly payments and about 26% of households in the United States have debt in collections. According to data gathered by Urban.org from a sample of credit reports, the median debt in collections is $1,739. Credit card debt is prevalent and 3% have delinquent or derogatory card debt. The median debt in collections is $422.
Collection and delinquency rates vary by state. For example, in California, 11% have student loan debt. Of those holding student loan debt, 8% are in default. Auto/retail loan delinquency rate is 3%.
Avoiding collections isn’t always possible. A sudden loss of employment, death in the family, or sickness can lead to financial hardship. Fortunately, there are many ways to deal with debt including an aggressive payment plan, debt consolidation loan, or a negotiated settlement.