How to Deal with Debt

If you’re one of the 70 million Americans struggling to pay your bills, you’ve come to the right place.

America has a massive debt problem. Last year, consumer debt approached $14 trillion:

That’s $144,000 for each U.S. household. And for each of those families, making the conscious decision to get out of debt and then figuring out how to actually do it isn’t easy. It requires research, a detailed plan and a supportive environment, whether that’s your spouse, family members, financial adviser, credit counselor or other debt expert.

The good news is that there isn’t one right way to get out of debt. The path (or multiple paths) you choose depends on your unique circumstances, such as the amount of debt you owe, the type of debt and your short-, mid- and long-term financial goals.

When to seek debt relief

Sometimes it makes sense to pay down your debt incrementally, by focusing on budgeting or increasing your income. This may involve using strategies like the debt snowball or debt avalanche. Both of these methods require you to make minimum monthly payments on your existing debt, plus find a little more in your budget each month to put additional money down.

Here are a few more questions to consider: 

  • Is your income steady or unpredictable?
  • How late are you on payments? 
  • How high are your interest rates? 
  • What kind of debt do you have: student loans, IRS, medical debt? 

Depending on your circumstances, there are several options to consider.

With a debt management plan, for example, a credit counselor works on your behalf to reduce your interest rates and fees and create a payment plan. Or you may choose to negotiate with creditors to pay less than the full balance of your debt. You can do this yourself or work with a professional negotiator, who knows the ins and outs of working with specific creditors.

A great place to start is to explore your options using this handy tool. See Your Options

And then check out the resources below to learn more about each strategy to resolve your debt and ease your stress.

Improve Credit Scores

Explore how your credit scores are calculated, what steps you can take to improve your scores, how long it takes to rebuild credit after debt settlement or bankruptcy, and how to spot and fix credit report errors.

Trim Expenses

Learning how to budget is one of the best ways to reduce debt and reach your financial and savings goals. Discover the best budgeting tools and get tips for how to stick to your budget and when to revisit it.

Boost Income

Whether your goal is to pay off debts or to save for a dream vacation or your kids’ education, nothing is as effective than simply making more money. Here’s how to negotiate a raise, start a side hustle and explore other ways to raise more cash.

Pay Down Debt

The reality of living with debt can be discouraging, but there is a light at the end of the tunnel. Here are tried-and-true strategies for paying off debt using a DIY approach vs. getting help from a debt relief professional — and the pros and cons of each.

Consolidate Debt

If you’re struggling with high interest rates on credit cards and loans while barely making a dent in your debt each month, it may be time to consider debt consolidation. Learn about the options for making it happen, the pros and cons of each and the best alternatives to this approach.

Reduce Interest Rates and Eliminate Fees

If you’re looking for help managing your debt, meeting with a reputable credit counselor might be an option for you. Credit counselors can help you create a budget, find ways to reduce your debt or enroll you in a debt management plan (DMP).

Negotiate with Creditors

Explore strategies to negotiate your balances with creditors yourself, how debt settlement plans work, what red flags to watch out for, and what a responsible alternative to traditional debt settlement programs looks like.

Consider Bankruptcy

Hundreds of thousands of people file for bankruptcy every year. If you have more debt than you can pay or negotiate, bankruptcy can offer a fresh financial start. Learn how it works, the difference between Chapter 7, 11 and 13, and the pros and cons of each.

Tips and red flags to watch out for

Debt Management Plans

What to look for

First, start by doing research on credit counseling agencies. Even if the agency is a nonprofit, that doesn’t mean it’s reputable or competent. Both the National Foundation for Credit Counseling and the Financial Counseling Association of America are good starting places for finding accredited agencies.

Look for an agency that will negotiate with your creditors to reduce their fees as part of your plan. And while most credit counseling agencies charge a monthly fee for their services, many will make accommodations for financial hardship if you qualify. Find out more about debt management plans here.

What to avoid

Steer clear of agencies that don’t offer general budgeting advice or that don’t discuss your financial situation and goals before enrolling you in a DMP. In addition, be wary of agencies that use your counseling session as an opportunity to upsell you ancillary products and services, such as credit protection insurance or credit repair services.

 

Debt Settlement Companies

What to look for

Before choosing a company, check with your state’s attorney general as well as your local consumer protection agency to see what kind of consumer complaints may be on file for the company you selected. We recommend finding a responsible alternative to traditional debt settlement companies (such as the service providers in the Resolve Network.)

What to avoid

Many large debt settlement companies won’t work with you if you have less than a certain amount of unsecured debt. Some may also charge you a fee as high as 20 to 25% of your total debt. (By contrast, service providers in the Resolve Network charge only 15% of what they save you, providing them with an important incentive to negotiate with your best interests in mind.)

In addition, avoid companies that charge fees in advance of settling your debt; this is illegal according to the Telemarketing Sales Rule. You should also note that in some cases, the debt settlement company will be NOT be able to settle all your debts. The Consumer Financial Protection Bureau outlines other risks you should consider when working with a debt settlement company. You can also learn more about specific companies and other red flags to watch out for here.

A great place to start

Quickly compare your options to get out of debt

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