1. Continue to make minimum payments or pay nothing at all

Interest rates average at least 15% and creditors can raise these rates at any time. If you can afford minimum payments, you will pay nearly 50% of your original balance in interest alone for the first 3 years and barely make even a dent on your principal. If your rates are 24% or higher, you cannot possibly eliminate your debts by paying minimums. You will not reduce your balances and therefore will not help lower your debt to income ratio. If you stop making minimum payments or pay nothing, you will destroy your credit while not eliminating any debt in the process.

2. Credit Counseling program

Credit counseling companies are typically funded by the creditors that you owe. In essence, they are another form of 'collections' as they charge interest and fees and disburse your payments directly to your creditors. Credit counseling companies generally charge both a set-up fee and monthly fee, often called a 'donation'. These fees may range from $20-$50. Your creditors even pay them a fee, called fair share, for doing so! Credit counseling does conveniently consolidate your bills into one monthly payment. Yet, it will typically take 5-6 years to pay down your debt in a counseling program. You will repay the full balance plus interest to your creditors. Credit counseling companies have pre-negotiated interest rates with your creditors. But this does not automatically mean that these rates are lower than yours. In fact, they can be the same or worse yet, higher. You will remain current with your creditors while in Credit counseling as long as the credit counseling company pays your creditors for you correctly and on time. However, while Credit counseling will not have a negative numerical affect on your FICO score, it will usually lead to "Credit Counseling", "CC", or "Credit Management" marks on your credit report. These marks are not viewed positively by lenders and can negatively affect your ability to qualify for a mortgage loan. Some lenders even treat this mark like a bankruptcy.

3. Consolidation loan or Home Equity Loan

To secure home equity loans or consolidation loans, you must first qualify. Home equity loans require either ownership of Real Estate property or a pledge of collateral. They also reduce the future equity available in your property. If you can qualify, you can use home equity loans to eliminate your credit card balances and the rates you will pay on the loan are typically lower than credit card interest rates. You will, however, likely pay a transaction fee upon closing the loan. This fee is paid upfront or built into the interest rates. These loans should not have a negative affect on your FICO or beacon score but they will not lower your debt to income ratio. The risk lies in missing payments. This could cause you to lose the real estate or collateral you pledged, even your home. You will still end up repaying the full amount of your credit card balances. By paying your unsecured debts off with a home equity loan, you are exchanging unsecured debts for a secured debt.

4. Bankruptcy

Bankruptcy has a severe negative impact on your credit rating for 7-10 years and is truly a last resort. It should be avoided if at all possible. While a Chapter 7 bankruptcy will eliminate all of your unsecured debt, you will still have to pay a filing fee of at least $1,000 plus attorney fees. Many people cannot file Chapter 7 because they have assets to protect. Therefore, they may file a Chapter 13 bankruptcy. In Chapter 13 bankruptcy, you may still repay 25-75% of your debt. Either bankruptcy will prevent most creditors from attempting to collect your debts. Any bankruptcy will lower your FICO score and may result in higher interest rates on future loans. They also carry a negative stigma, mental stress, and other burdens. New laws being passed will make it more difficult to file bankruptcy, eliminating this option for some people.

5. Debt Arbitration

This is also known as debt settlement, debt negotiation, or debt work-out and is essentially the process of negotiating lump settlements on your unsecured debts. The settlement is off of your entire principal balance, irrespective of the interest and finance charges creditors try to add on your account. With debt arbitration, you will typically repay 40-60% of your current debt balances. Your debt can be paid off in typically one to three years resulting in a quick reduction of your debt to income ratio. This is a significant factor used by lenders to qualify you for a loan. Debt arbitration firms, unlike credit counseling agencies, are not at all affiliated with your creditors. They are independent companies that work for you. They charge fees which are typically paid out over time. While in debt arbitration, regular payments are not made to your creditors. This will result in an 'open delinquency' on your credit until the debts are settled. Debt arbitration is not a positive for your credit and will likely have an adverse affect on your FICO score.

Now that you have reviewed each of the Debt Reduction options, you need to decide which is best for your particular situation. A risk-free way to begin is to call our trained debt counselors for a free consultation. They can answer any of your questions and can discuss each of the options available to you. A counselor can be reached toll-free at (888) 331-DEBT (3328).