How Do I Eliminate My Consumer Debt - Advice On The Best Ways To Pay Off Debt

In these financially difficult times, more and more people are finding themselves with a serious burden of consumer debt. When times are hard many people turn to credit as a way of keeping going, but all too often the amount of debt gradually rises to a point where it becomes impossible to repay it. This is a very common situation and one which can cause a great deal of stress and anxiety as creditors chase their money and the interest charges just keep on growing.

The good news is that there is no debt problem that is so serious you cannot get rid of it eventually. The best solution for you will depend on your situation, but in general there are a few basic options. Most of us are in debt to a greater or lesser extent, but this article is about the times when it gets out of control and becomes a serious problem. The solutions I will cover are therefore designed for fairly serious amounts of debt.

The first option is a way of restructuring all your debts to come up with a plan that allows you to make a single monthly payment which covers all your debts. This is called debt management and is also known as debt consolidation in the United States. This is not the same thing as a debt consolidation loan, as debt management does not involve any further borrowing. These informal arrangements are known as debt management plans or debt payment plans.

The basic principle is that you use a debt management company to deal with your creditors on your behalf, and they negotiate with them to agree new repayment terms that bring the payments within your means. They do this for all of your creditors and you end up making one single payment to the debt management company, who then pay your creditors for you.

To take part in a debt management plan you need to have quite a lot of unsecured debt, usually to several different companies. Unsecured debts are things like credit cards, unpaid bills, etc, rather than mortgages or secured loans. You also need a source of income and must have some money left over each month after paying your essential household costs.

For those with even more serious debt problems, who cannot afford the monthly payments for a debt management plan, there are still better alternatives than bankruptcy. In the US the alternative is known as debt settlement or debt negotiation. This is a process in which a specialist company will negotiate with your creditors to agree settlement terms for your debts. This will normally mean reaching agreements which involve having a large part of your debt written off, in return for a lump sum payment. Negotiated agreements will vary a lot, depending on the nature of the debts and the creditors involved.

For UK citizens the equivalent to debt settlement is an IVA, or Individual Voluntary Arrangement. This is a scheme set up by the government and provides a less drastic alternative to bankruptcy. These are formal agreements which normally last for five years, and can result in getting up to 75% of your debts written off. When your debts are so serious that your only choice appears to be bankruptcy, then debt settlement or an IVA can provide a far more preferable option, without any of the publicity, stigma or lasting consequences that bankruptcy brings with it.

A great many companies now offer debt management, debt settlement and IVAs, and it is very important to take care with how you go about deciding which one to work with. You should be aware that many companies only came into existence to take advantage of the current financial situation, and many care much more about making money for themselves than they do about finding the best solution for people in a debt crisis.

Always use well established and reputable companies that have a record of having successfully helped many people out of debt already. Even with good companies, the proposals will vary a lot, so you should approach at least two or three and compare their offers. This will also give you a chance to see which ones you feel comfortable with in terms of the people you will need to deal with.

Read recommendations for reputable debt management companies in the UK and US.