Many Americans are experiencing financial difficulties and feel like things are spiraling out of control. Unemployment and inflation are at historically high levels but there is help available for those ready to take the steps necessary to get their finances back on track. Several options are available to help consumers with debt relief and a professional debt counselor can help to determine which option best fits a particular situation.

Credit Counseling

Consumer Credit Counseling Service (CCCS) can help individuals who are struggling with their debts. They provide assistance with budgeting tools and by negotiating lower interest rates with creditors. This typically lowers the amount of the monthly payment with more going straight to principle and enables consumers to meet their monthly obligations more easily.

Setting up a self-administered budget and payment plan is one way that the CCCS can help the consumer. A thorough review of the consumer's financial situation is completed by a credit counselor who then makes recommendations on what will be most beneficial to the consumer. In this situation the consumer will still be responsible to pay each creditor in a timely manner.

In some cases the consumer makes one payment per month toward all debts to the CCCS through a Debt Management Plan. The CCCS then pays creditors for them. Because the CCCS is able to negotiate lower interest rates for the consumer, this type of service can be particularly beneficial for those carrying high interest credit card balances. One of the benefits of this type of plan is that the consumer will not have late payments recorded on their credit history while enrolled.

When participating in a Debt Management Plan, consumers are normally required to attend credit counseling sessions and not to open new lines of credit.

Debt Settlement

The option of Debt Settlement is handled through a firm that specializes in helping consumers to lower interest rates and to be forgiven a portion of their total principle balance. The debt settlement firm negotiates directly with the creditors as an advocate for the consumer to reduce the overall debt, also avoiding bankruptcy in some cases.

By working through a debt settlement firm, payments made by the consumer are placed in a fund administered by the firm and held until the agreed upon payoff balances are reached then the debts are paid off. The monthly contribution to the fund is usually lower than the individual payments the consumer has been making. It also enables the consumer to become debt free within two to four years as opposed to 15 years or longer making their minimum monthly payments.

Although Debt Settlement firms do charge a fee for their services, a reputable firm will not charge the client until after the situation has been resolved successfully. Note that it is extremely important to research the debt settlement firm to ensure that they are accredited and qualified with a proven track record.

On the negative side, this type of settlement allows creditors to continue adding interest and fees to account balances and can lower credit scores since no payments are made during the process. Collections are sometimes initiated by creditors during the process as well, but a reputable debt settlement firm will assist the consumer with these issues.

Debt Consolidation

This type of debt relief is usually accomplished by taking out a secured loan with the most common being a home equity line or a loan secured by some type of real property. For many people this is a good option as it lowers the total monthly payment and reduces interest rates, allowing the debt to be paid off much faster. Although the entire balance is required to be repaid, the consumer saves a considerable amount through the lower interest rate. Provided that all payments are made in a timely manner, this will also avoid any negative impact on their credit score.

The negative aspect of a secured loan is that if financial difficulties arise later and the consumer is unable to make their monthly payments, the property used to secure the loan could be seized by the lender. Another risk with a debt consolidation loan is running up debts again after credit cards are paid off. For those who feel this might be too tempting, debt reduction might be a better option.

Minimum Payments

Many consumers who are struggling with credit card debt are only able to pay the minimum monthly payment. While this will keep accounts current, depending on the interest rate being charged this approach could end up taking many years to completely pay off the balances, if ever. It can also end up costing the consumer as much as four times the actual amount of the debt or more, depending on their interest rate.

For those who are in a situation where even meeting the minimum monthly payment is a hardship, a debt reduction program might be a better option.

Bankruptcy

Bankruptcy is usually used as a last resort when other methods of debt relief have been attempted and failed. Sometimes it is the best option for those struggling under a staggering debt load. There are negative aspects associated with bankruptcy that include: serious damage to credit rating, requiring liquidation of assets, public disclosure all liabilities and assets, filing fees and attorney fees if an attorney is retained. A bankruptcy also stays on a person's credit report for up to 10 years.

If after reviewing all options there is no other feasible alternative, then bankruptcy might be the best choice.

Types of Bankruptcy

• Chapter 7 - Depending on the consumer's income, a Chapter 7 will effectively wipe out all debts, but also requires liquidation of some assets. The type of assets varies from state to state. Income guidelines are very strict for Chapter 7 bankruptcy.
• Chapter 13 - This type of bankruptcy requires those with a regular income source to set up a payment schedule with their creditors. The total paid back and the amount of the monthly payment is decided by the bankruptcy court.