We receive questions everyday from debt burdened consumers looking for more information on the options available to them:

The Main Debt Relief Solutions

Millions of Americans are asking how to resolve debt problems. They need debt relief information so that they can understand all of their options.

To start out with, there are four primary concerns for most consumers who are seeking a debt relief solution:

• Monthly payment
• Time to debt freedom
• Total cost
• Credit rating impact of the debt resolution program

Evaluate each program available relative to your prioritization of these factors — not all programs are equal and not all are well suited to each consumer.

Since there are a variety of debt resolution options, including credit counseling, debt negotiation/debt settlement, a debt relief loan, bankruptcy, and other debt resolution options, it is important to fully understand each option and then pick the solution that is right for you. In this quick overview, we'll cover each solution quickly and then provide additional resources, tips and tools to help you learn and find the best debt solution for your own situation.

Credit Counseling

Credit counseling, or signing up for a debt management plan (DMP), is a common form of debt relief. Many companies offer credit counseling, which is essentially a way to make one payment directly to the credit counseling agency, which then distributes that payment to creditors. Generally, a credit counseling agency will lower your monthly payments by getting interest rate concessions from lenders or creditors. Credit counseling is like aspirin for a mildly sick patient, where a little help and medicine solves a real pain or financial problem.

It is important to understand that in a credit counseling program, you are still repaying 100% of your debts — but with 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 may 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.

Debt Settlement
Professional Services or Do-It-Yourself

Debt settlement, also called debt resolution, is a form of debt relief that resolves your total debt for less than the principal balance, with low monthly payments. Debt settlement programs generally run around three to four years.

It is important to keep in mind, however, that during the life of your debt settlement program, you are not making monthly payments to your creditors. This means that a debt settlement solution will negatively impact your credit rating. Your credit rating will not be good, at a minimum, for the term of your debt settlement program. However, debt settlement is usually an effective way to resolve your debt, with a low monthly program payment, while avoiding Chapter 7 bankruptcy. The trade-off here is a negative credit rating versus saving money. Debt settlement is also a very aggressive form of debt relief, and it's really akin to surgery for a seriously ill patient — it will hurt but will get you on the road to be financially stable and healthy again.

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

Note: The IAPDA has many members who completed our training and obtained certification to first settle their own personal problem debt and then began a successful career helping others in a similar situation either working as a small business or as a certified employee of an established debt settlement company.

Debt Consolidation Loan

Many people think first of a debt consolidation loan when seeking debt relief. This option typically means a second home loan (or home equity line of credit) or refinancing your primary mortgage. In a debt consolidation loan, you exchange one loan for another. The most frequent form is taking out a mortgage loan, which usually carries a lower interest rate and may be tax deductible, to pay off high interest rate credit card debt.

It is important to be aware that shifting unsecured debt to secured debt can create a volatile situation, if there is ever a chance that you cannot afford the new mortgage payment you are now putting yourself at risk of foreclosure! In the case of a debt relief loan, most mortgages are 30-year loans, which means that the total cost and the time to debt freedom could be very high, but the monthly payment will be lower than other options and there is generally no credit rating impact. The good news about consolidating credit card or unsecured debts into a mortgage is that mortgage interest is usually less costly and it may be tax deductible, lowering the lifetime true cost of the debts.

Bankruptcy

Bankruptcy may also solve your debt problems, but is a very different form of debt relief. A Chapter 7 bankruptcy is a traditional liquidation of assets and liabilities, and is usually considered a last resort. Since bankruptcy reform went into effect, it may be harder for some to qualify for Chapter 7 bankruptcy, forcing them to file for Chapter 13 bankruptcy where you generally repay a portion of your debts over an approximately five year period. If you are considering bankruptcy, you should always meet with an experienced bankruptcy attorney in your area.

Default - Doing Nothing

Some people wonder what would happen if you do nothing. If you stop paying your unsecured debts, creditors have the right to collect the debt. First, you will likely receive collection calls and letters from the creditor directly. If you are still unable to pay the debt after several months, the creditor is likely to refer the account to a third-party collection agency.

Third-party collectors are known to be much more aggressive in their collection tactics than original creditors, so do not be surprised if the calls become more persistent, or even threatening. Thankfully, the Fair Debt Collections Practices Act has rules governing the behavior of collection agents. However, unscrupulous debt collection agents do not follow these rules.

In some cases, when all other collection efforts fail, a creditor may decide to file a lawsuit against the debtor. This may not be a frequent occurrence, but it is within a creditor's right and a possibility about which you should be aware. If one of your creditors sues you, the court may issue a judgment in the creditor’s favor, depending on the circumstances. Depending on your state's laws regarding the enforcement of judgments, the creditor may be able to garnish your wages, levy your bank accounts, place a lien on your property, or take other action to enforce its judgment. Seek advice from an attorney if you are concerned about these consequences.

Regarding a credit report, default damages a credit score severely. In addition, default is a warning flag for many lenders, who will refuse to deal with a potential customer with a default on their record. As a result, doing nothing and allowing default is a poor option for most consumers.

Summary

Although there are many forms of debt relief, people with good to perfect credit who own homes may want to look into debt relief loans, while those with high credit card debt and poor credit may want to explore debt settlement. However, each consumer is different, so find the debt relief option that fits your circumstances.

Lastly, here are some tips for your own quick Debt Relief Evaluator: