Reducing Credit Card Debt Fast Is Priority #1
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Consumer Debt Reduction

It started with a single purchase. You didn't have enough in your savings so you took out a loan. Now you have 7 loans and your payments are getting pretty burdensome. You don't know what to do., but you know you have to do something - and soon. Consumer debt reduction is one idea. If you go this route, just make sure you understand all of your options.

Consolidation Loans

Debt consolidation is one of the most popular ways to rid yourself of debt. Basically, this financial strategy works by consolidating all of your debts into one (usually bigger) loan. Because larger loans can be stretched out for a longer period of time (i.e. the repayment period is longer), the amount of your money payment can drop significantly.

There are, however, instances where a professional debt consolidation company can manage to negotiate your debts into one loan, reduce the total size of the debt, reduce the interest rate, and shorten the payment term and still lower your monthly payment amount.


Balance Transfer - this method utilizes a credit card balance transfer. You take all of your existing credit cards and transfer the balance to a new card. Often, the balance transfer allows you to save money on interest payments because the transfer comes with an introductory rate that's low (sometimes it's as low as zero percent). This method is only useful if you're consolidating credit cards.


Personal Loan - A personal loan allows you to consolidate almost any loan type. For example, you may have several credit cards and personal loans. They can all be wrapped up into one personal loan. This type of consolidation is effective but often comes with higher interest rates than secured loan options.


HELOC Consolidation - This type of consolidation works similar to a personal loan but your home is used as collateral.


Professional Debt Consolidation - This type of consolidation uses a professional organization to consolidate your debts for you. Sometimes, a loan is secured on your behalf. Other times, the company negotiates directly with your creditors and you make payments to the debt consolidation company.

Debt Settlement

Debt settlement is also a popular way of reducing your debts. Instead of consolidating debts, you hire a company to negotiate your debts. In the process, your creditors agree to settle your debts for less that the full amount you owe.

Because debt settlement companies often have good relationships with thousands of creditors, it's often not too difficult to cut your total debt to 90 or 80 percent of your original amount. In some cases, you can have your debt cut by up to 50 percent. So, instead of owing $10,000 to 7 different creditors, you owe $5,000 to just one. Debt settlement companies know that collection agencies can purchase debts for 7 to 10 cents on the dollar, so the profit potential is there for the debt settlement company. In a way, they are sort of like a collection agency except that they work on your behalf instead of against you. You pay the settlement company out of the settlement amount. To you, the payment to the settlement company is invisible since all of your payment goes directly to the company with no distinction between what is going to your creditors and what is being retained by the company.

It's an effective way to dramatically cut your debt, and get everything paid off in short order. The only downside is that it will negatively impact your credit (you are, after all, paying less than the full amount you owe). In addition to dinging your credit, you will likely receive a 1099-C cancellation of debt form from the settlement company (or your creditors). You'll have to pay income tax on any debt amount that was not paid (i.e. the difference between your original debt amount and the settled amount).

Credit Counseling

Credit counseling prepares you for bankruptcy, but it can also keep you out of bankruptcy. Many credit counselors are set up as educational institutions that teach you how to better manage debt and credit, help you build a sound budget, and help you consolidate and pay off your outstanding debts. Some organizations will also help you settle debts that you just cannot pay off.


Bankruptcy should be a last-ditch option. It ruins your credit and it's uncertain how things will end for you. For example, Chapter 7 bankruptcy wipes out all of your debts, but it basically leaves you destitute. Chapter 13 simply reorganizes your debt, and you have to repay your creditors (though you repay a smaller amount than you originally owed - it's sort of like settling your debts). You won't know what you qualify for without going through pre-bankruptcy filing requirements and courses offered by credit counseling organizations.

At the end of the day, bankruptcies make it virtually impossible to obtain credit and effectively bar you from the credit industry for the next 7 to 10 years. It may also negatively affect your insurance premiums, your ability to rent apartments, and it might even prevent you from getting a job if your employer runs a credit check (and uses it as a determining factor for employment).