What’s the Best Debt Solution for You?

Finding the most effective method to get out of debt.

If your goal this year is to pay off debt, you need a plan. While consumers have had the option to defer credit card payments during the pandemic, we’ve actually paid down record debt despite the economic downturn, according to Forbes.

It can be overwhelming to figure out how to pay off thousands of dollars in debt on your own. That’s why Consolidated Credit’s February webinar tackles the five most effective and popular ways to get out of debt.

However, all these methods can be more complicated than they seem. The option that’s best for you depends on your debt, credit, income and more. You might be able to find a debt solution on your own, but before you sign up for anything it’s crucial that you get informed. You can also use free credit counseling to get an unbiased, professional opinion on the best way to become debt-free given your unique financial situation.

Here’s an overview of the five methods reviewed in the webinar:

Best Debt Solution for You Infographic

DIY debt solutions

There are two effective ways you pay off debt on your own: using balance transfer cards or debt consolidation loans.

Balance transfer cards work how they sound: you transfer your existing credit card balances to a new credit card and pay little to no interest. However, the fees to transfer your balances can be high. Another drawback is if you don’t pay off your entire balance on the card, the interest rate can jump back up – so it’s important to use these responsibly. You typically need a 670 credit score or higher to get approved.

Debt consolidation loans are personal loans you take out to pay off your high-interest rate credit cards. For example, you can use a debt consolidation loan at 6% APR to pay off your credit card charging you 20% APR. You can get out of debt in 2 to 5 years with this method, but if you have too much debt or bad credit, you may struggle to get approved. What’s more, if the interest rate is too high, you may not get as much benefit from the interest rate reduction.

Getting professional help to get out of debt

Depending on your financial situation, it may be easier and faster to seek out professional help to pay off your debt. Here are the three solutions you can try, and consider them in this order: debt management, debt settlement, then bankruptcy.

Debt management programs (DMPs) are only available through credit counseling agencies like Consolidated Credit and can cut your total credit card payments by up to 30 50 percent. With a DMP, you make one monthly payment to pay off all your credit cards and other unsecured debts. The program takes three to five years to complete, so it’s not a quick fix. But you have the benefit of having a counselor by your side the whole time.

Debt settlement allows a company to negotiate with your creditors to get out of debt for less than you owe. On average, people finish by paying off only 48 percent of what they owed. The potential drawbacks include damaging your credit score and being scammed. You can find reputable companies by checking if they have an A+ rating on the Better Business Bureau website and seeing their reviews on Trustpilot.com or ConsumerAffairs.com. Trustworthy companies will also never charge upfront fees.

Bankruptcy comes in two main forms: Chapter 7 and Chapter 13. The former may require you to liquidate some of your assets, while the latter creates a payment plan that can take up to 5 years to complete. With both, you’ll have a black mark on your credit score for years. If you file Chapter 7, your bankruptcy stays on your credit for 10 years – and 7 years for Chapter 13.

Learn even more about your debt relief options by tuning into February’s webinar. Sign up here:

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