Options for Paying Down Debt

Nov 8, 2011 by

Debt Options and Affect on Credit ScoreListed in order of the least to most negative affect on your credit score, here are your options for dealing with credit card and other high-interest, unsecured debts:

  1. Set up and execute your own repayment program
  2. Sign up for a Debt Management Plan program through a nonprofit credit counseling agency
  3. Negotiate debt settlement agreements with your creditors
  4. Bankruptcy
  5. Put your head in the sand

Of these, if bankruptcy can be avoided, #2–a Debt Management Plan, or DMP–is best in probably 90% of all cases. You sure don’t want to do #5–put your head in the sand–until #4, bankruptcy becomes your only option.

Why not #1, setting up and executing one’s own repayment plan? Well, to be brutally frank, in my experience, most debtors with the discipline and financial savvy to pull off their own debt repayment program wouldn’t be in a debt mess to begin with. This isn’t true for everyone. Some debtors–a minority–are well disciplined and smart about money but get into debt due to an extended layoff, medical bills, or something else unexpected and unavoidable. For these folks, #1 may be the best option. But the plain, simple truth is: Most people with too much debt voluntarily spent more than they earned for a long time! For these folks, the discipline of a DMP is crucial to a successful debt repayment program.

There are many other reasons to prefer a DMP to a self-managed repayment program. More about these benefits in a future post.

The bottom line is: Take control, first by understanding your options, and second by going to work on the best choice for your family. Once you’ve chosen a plan to deal with your debts, no matter how challenging that plan may be, your stress will begin to ease because your escape from the high-interest debt trap will be in sight.

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