What Are the Main Solutions to Debt Problems?

A variety of solutions can help you escape the debt trap.
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Racking up a pile of debt can make you feel like you're in a hole from which you can never escape. However, there are a variety of solutions that can help you reduce and even eliminate your debt, either on your own or with assistance. Solutions range from the relatively painless to those that may require a great deal of sacrifice.

Payment Plan

Attack your debt by establishing a payment plan. One option is a snowball plan in which you focus on one debt at a time. Pay as much as you can each much toward the debt with the smallest outstanding balance and pay only the minimum due on your remaining obligations. When you retire the first debt, turn your attention to the one with the next highest outstanding balance. Continue the process until you are completely out of debt. Much like a snowball rolling downhill, you will build momentum as your overall debt decreases.

Debt Consolidation

With debt consolidation, you combine your high-interest obligations such as credit card debt into a new loan offering a lower interest rate. A common debt consolidation method is a home equity loan or line of credit where you borrow against the equity in your home. Debt consolidation can be effective as long as you don't resort to your old habits by taking advantage of the freed-up space on your credit cards to make new charges. Also, if you default on a home equity loan, your lender could start foreclosure proceedings.

Credit Counseling

If you think you need help with your debt issues, a nonprofit credit counseling service can provide assistance. The counselor with work with your creditors to attempt to lower your interest rates and set up a payment plan to eliminate your debt over a period of time. She will also help you manage your finances by working with you to set up a budget. Be aware that even nonprofit credit counselors may assess fees for their services.

Debt Settlement

Debt settlement firms differ from credit counseling services in that they often claim to be able to significantly reduce the amount you owe by as much as 30 to 70 percent. They generally will tell you to stop making payments while they negotiate with your creditors to reach a final settlement figure. The Federal Trade Commission advises that you approach debt settlement companies with caution, as many charge exorbitant fees and produce little in the way of results. Settling a debt can also have a significant negative impact on your credit score.


As a last resort, you can turn to bankruptcy to solve your debt issues. Bankruptcy can stop collection proceedings against you while eliminating some or all of your debt. You may also be able to keep valuable assets such as your car or home. However, bankruptcy can harm your credit for up to 10 years after filing and can impact other areas of your life, such as your ability to find a job.

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