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Debt Solutions

It’s a common misconception that all debt relief programs are the same. The media tends to lump them all together, but the difference between the programs and the one that best suits your personal needs is important to understand since you could feel the fallout for years if you make the wrong decision. Being knowledgeable about the various debt relief options available to you can make all the difference in successfully attaining debt-free financial security.

1. Credit Counseling

Companies that offer these ‘nonprofit counseling programs’ charge you a fee for working with your creditors to reduce both your current interest rates and your minimum monthly payments. A Credit Counselor works with (and some of them for) the credit card companies to reduce your interest rate to something more manageable and may waive late fees, over-limit fees, etc. However they do nothing about reducing your balance at all. Some Credit Counselors are actually paid by (or a part of) the credit card companies. Although this may be seen by some as a conflict of interest, they still can help to lower your payments a little.


  • The safest and least impact to your credit score
  • Some creditors will reduce the interest rate, depending on individual creditor policies and your charging and payment history.
  • Minimal or no collection calls


  • The longest program to get out of debt
  • No reduction in principle
  • You will ultimately pay more than your original amount owed
2. Debt Consolidation

Debt Consolidation is a generic catch-all term (same as “Debt Relief”), sort of like Jacuzzi is to hot tubs and Kleenex is to tissue paper. However it is a specific type of program that merges multiple smaller loans into a single, larger loan. Normally this will allow higher interest debt to be converted to lower interest debt and is usually secured.

Debt Consolidation and Debt Management plans usually have you trade your unsecured debt for secured debt, sometimes by refinancing your home to get the money to pay off your credit cards. When you can’t make the payments on unsecured debt (like credit card debt), you could declare bankruptcy, and all that debt could be erased. If you ‘consolidate’ your loan by taking a loan secured by your home and then have to declare bankruptcy--you may lose your home!


  • All of your payment dates are adjusted to one date in the month so that you make a single payment per month
  • Your interest rate maybe reduced


  • May not always work and can end up paying more than the original amount owed
  • May jeopardize your home (if you have a mortgage) if you can’t follow through with the Program
3. Debt Settlement

Debt Settlement (also known as Debt Negotiation) is the most aggressive of the debt relief programs and is quickly becoming the most popular solution. It is the quickest way of eliminating debt without the lasting credit harm of a bankruptcy.  

There is a lot of attention and heat form the media since its gain so much popularity, and with the success, comes a lot of scrupulous and fraudulent debt settlement companies popping up everywhere to take advantage of vulnerable consumers needing help.
Here’s how the debt settlement process works:

  • After your monthly payment plan is determined, you pay the debt settlement company your monthly payment into a special reserved escrow account that accumulates quickly over time.
  • When the account has built up to about 50% of what you owe the first creditor, the debt settlement company will offer that creditor the opportunity to settle.
  • If/when the creditor takes the offer; the process starts over again for the next creditor in line until they are all paid off.


  • You will most likely pay considerably less money than what was originally owed
  • You will most likely get out of debt a lot faster than any other type of debt relief program (except bankruptcy)
  • Credit scores improve quicker if individuals are debt free


  • Collection calls,  although they will decrease over time as you settle with your creditors
  • Your credit score will temporarily be impacted negatively
  • The IRS considers $600 or more of forgiven debt as taxable income, which should be reported on the IRS Form 1099-C as income.  However, the IRS does not require taxpayers to report forgiven debt if the tax payer was insolvent (debts are greater than your assets) at the time the creditor forgave the debt.  If you determine that you were in fact insolvent, include IRS Form 982 with your tax return.
4. Bankruptcy

Bankruptcy is a legal proceeding filed in the United States Bankruptcy Court that permits you to obtain a discharge of your obligation to pay certain debts. Many lawyers may pitch it as a quick fix that will wipe your slate clean, but in reality it’s a long process that will affect you and your credit for at least the next 10 years in some states, and will make it more difficult and more expensive to obtain new credit. Depending on your personal situation and the laws of your state, you may have to liquidate some of your property and assets. It may be more difficult to buy or rent a car, rent an apartment, obtain insurance since you will be considered a higher risk that involves credit or requires you to make regular payments. Additionally, recent regulatory changes have made it harder to file Chapter 7 bankruptcy.


  • Potentially the fastest and cheapest way to get out of debt
  • Stops collection calls quickly


  • Has the most negative effect on your credit for the longest duration of time
  • More difficult and more expensive to obtain new credit
  • More difficult to rent an apartment, buy or rent a car, or obtain insurance
  • Harder to qualify with new laws passed for Chapter 7

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