A credit counselor reviews your financial situation and if possible, sets up lower interest rates with your creditors. Then, they implement a structured payment plan for you to follow, so you can work towards minimizing the interest paid on your outstanding debt. Credit counselors can also provide valuable insights into your personal finance practices so that you can continue to enjoy financial freedom after you’ve completed your Credit Counseling program.  This way you don’t return to your default modes of financial behaviors and accrue other large balances.

You take out one loan to pay off multiple debts. This loan can have a lower interest rate than your debts. You make fixed monthly payments on until the loan is paid off.

For this type of debt solution, you must work with a mortgage lender. As a borrower, you refinance or take on an additional mortgage. This makes more cash available to the borrower beyond the mortgage balance. You would then use that money for debt payments, whether towards a credit card balance or to other lenders.  This route is only feasible if you own your home. Going this route will also affect the amount of equity you have in your home.

Working with a company, you make monthly deposits into an account. The company works with your creditors to accept less than the debt owed. That amount is then paid to creditors, from the account you deposited into, until the debt is resolved.

This is a full legal process that stays on your credit report for up to 10 years. All assets are evaluated and used for debt payments. Chapter 7 and Chapter 13 are the two types of bankruptcy options. Once bankruptcy is complete, you will be relieved of the total debts you had before filing for bankruptcy.  The key differences between chapter 7 and 13 bankruptcy are; Chapter 7 is commonly referred to as a liquidation bankruptcy.  You must first qualify for it based on your household income.  If approved, your debts will be discharged, eliminating them completely. Those that make too much money might qualify for a Chapter 13, otherwise known as a reorganizational bankruptcy.  In Chapter 13, a judge will examine your financial situation to determine what you can afford to pay monthly to pay off your outstanding debts typically within a 5 year term.  You then follow a court mandated repayment plan until your debts are completely paid off. It is not guaranteed that you will qualify for bankruptcy.

This is the path that most people follow. Instead of paying your balance in full every month, you pay the minimum payments outlined on your statements.  This method is the slowest and most costly of all. Paying only minimum payments causes your debt to increase without any additional spending.  Compounding interest is added to your balance every month it is not paid off. This method might keep you “current” on your bills, but will rarely if ever get you out of debt.