Some people are able to climb out of debt on their own — typically using a combination of careful budgeting and targeted repayment, like the snowball or avalanche methods. But many others find do-it-yourself (DIY) debt elimination isn’t enough on its own; even after trying to tackle debts for months or years without help, they’re still facing down a significant balance.
If you’re one of the many Americans who’s found DIY debt relief hasn’t worked for you thus far, you’re probably wondering, “Now what?” Here are four solutions to explore beyond trying to tackle unsecured debt, like medical bills and credit card balances, on your own.
If you’re struggling to keep up with several — or many — payments to various creditors each month, debt consolidation may be able to help you simplify your repayment strategy. Consolidating debt means taking out a single personal loan which you can then use to pay all your other outstanding debts in full. Then it becomes your responsibility to repay that loan in full according to the agreed-upon terms.
There are two primary potential advantages to consolidating your debts. The first is that you’ll only have to make a single payment to a single lender each month, which tends to make repayment easier. The second is that you may be able to reduce how much you pay in interest. Depending on your credit score and overall financial standing, you may be able to qualify for a consolidation loan around 10 or 15 percent annual percentage rate (APR) — which is better than paying credit card APR upwards of 20 percent.
As with any strategy, it’s important to know the risks, too. Success depends on repaying your loan consistently over time; falling behind on payments will put you right back where you started, or worse. You may also inadvertently end up paying more over time if you take on a long-term loan with a substantial APR.
Debt settlement is another option for people who need a heavy-duty solution beyond DIY repayment. This strategy hinges on negotiating with creditors in the hopes they’ll accept a percentage of what you owe in exchange for timely repayment. Debt settlement programs require enrollees to make monthly deposits leading up to negotiation, so the funds are ready to go quickly toward repayment if a creditor accepts a settlement. Ideally, consumers end up zeroing out balances for just a percentage of what they originally owed. Reputable programs also require enrollees to pay fees only on settled debts.
As recent Freedom Debt Relief reviews demonstrate, people have many reasons for pursuing settlement. One enrollee wrote, “Our credit card debt has become a burden, which I sincerely would like to put behind us. We have never been late on a payment and always paid more than minimums but we weren’t gaining ground.” This just goes to show sometimes DIY debt repayment is simply not enough to make a real difference in the face of rapidly compounding interest.
As with any debt relief strategy, the settlement has its own pros and cons — like the fact creditors and collectors may still contact consumers enrolled in the settlement, demanding payment or threatening legal action. Finding the right strategy simply means doing your research and weighing the rewards against the risk.
If you visit a credit counselor to discuss your financial situation, they may recommend a debt management plan (DMP). Through a DMP, you’ll make a single payment to this agency rather than paying your creditors directly. The agency will disburse payments and will try to negotiate with creditors for more favorable interest rates and reduced fees. You’ll still be on the hook for 100 percent of the principal, but you may be able to tackle debt in three to five years and reduce how much you pay overall in APR and fees. You will typically pay a monthly fee to the agency.
If DIY debt relief hasn’t worked for you, it may be time to explore settlement, management or consolidation.