5 Methods For Eliminating Your Debt — Which One is Right For You?

Millions of Americans will find themselves having to work their way out of credit card debt in their lifetime. At any given moment, 41 percent of Americans are carrying outstanding balances month to month on their credit cards, according to a 2021 U.S. Federal Reserve survey.

Sometimes unpaid balances are a short-term solution for an emergency, whether an unexpected medical expense or experiencing a job loss. But if you are already carrying some credit card debt when one of life's little (or big) emergencies takes place, it's easy to find yourself behind and struggling to keep up with just the minimum payments. You do have options to help you get rid of debt — and any solution will be better, work faster and cost you less than paying just the minimum payments on your credit cards each month.

Read about the options for managing and resolving debt below, to learn which solution best fits your circumstances. And remember — your commitment to whatever plan you choose will define whether you succeed.

1. Debt Consolidation Loans


  • Instantly pay off creditors if you qualify
  • Pay significantly less in interest vs. making minimum credit card payments*
  • Pay off debt in 1 to 5 years


  • Potential up-front costs (loan origination fee, closing costs)
  • People with low credit scores may not qualify for lower interest rates

A debt consolidation loan is essentially a personal loan. An individual is approved for the loan, pays off their credit card balances with the loan funds, and makes one monthly payment to the lender.

The loan terms — the rate and the length of the loan — an individual will qualify for are partly determined by the individual's income and credit history, as well by how much cash the individual has available to put toward a loan payment each month.

The benefits of a debt consolidation loan are (1) you'll reduce the number of creditors you pay, and (2) you'll likely secure a lower interest rate than what you are currently paying with the credit card companies. Reducing the number of payees greatly reduces the stress and pressure of juggling a lot of debt and creditors, and an added bonus is the loan has a defined endpoint: you will be out of debt at the end of the loan's term.

*Actual interest rates and total interest paid will vary based on lender criteria and your specific circumstances.

2. Debt Relief Programs


  • Reduces principal debt — savings of up to 50%
  • Provides interest payment relief
  • Pay off debt in 2 to 4 years


  • There are associated fees; work with a trusted firm with a solid reputation
  • Credit score dips initially as credit cards go into default for nonpayment
  • Litigation is possible

Debt relief programs — also called debt negotiation, debt resolution, or debt settlement programs — are any solution/service that offers to negotiate, settle, or otherwise change the terms of one or more debts owed to creditors on behalf of the individual carrying the debt. This often leads to a reduction of the overall principal balance of the debt owed.

When entering a debt relief program, the individual works with trained counselors or lawyers who negotiate a reduction of the debt directly with the creditors — sometimes reducing the amount owed by as much as half.

Instead of paying creditors directly, individuals pay a single, manageable monthly fee into a bank account set up solely for the purposes of the program. Funds in the account build over time and are used to pay creditors once a settlement agreement is struck. It's key to note that while in a debt relief program, the individual normally stops using their credit cards, as creditors will negotiate and accept lower payments only when they believe they are unlikely to collect the debt in full. There are also associated fees for most programs, and the fees vary by client, the amount of enrolled debt and the state where the individual seeking debt relief lives. To learn more about how these programs' fees are regulated, you can review federal regulations.

The benefits of debt relief are that the individual reduces the principal sum owed, will save by not having to pay monthly compounded interest on the debt over all the years it would take to pay it off with minimum or close-to-minimum monthly credit card payments, and will eliminate the debt in 2 to 4 years.

3. Credit Counseling/Debt Management Programs


  • An educational approach that teaches money management skills
  • Credit counselor can negotiate lower interest rates from creditors
  • Preserves credit score


  • To qualify for a debt management program (DMP), the individual must be able to afford more than the monthly minimums
  • An initial analysis is typically free, but there program fees
  • Does not reduce principal debt amount

Credit counseling is a service that helps individuals struggling with money and debt issues by teaching solid financial practices and, if the individual qualifies, enrolling them into a debt management program (DMP). The credit counselor notifies creditors that the individual is in a DMP and works to negotiate lower interest rates on the debt. The counselor also assumes responsibility for paying the creditors; the individual relinquishes their credit cards and pays the counselor monthly.

The benefits of credit counseling are learning money management skills, paying lower interest rates on the debt and getting out of debt more quickly (vs. making minimum credit card payments). However, an individual has to have enough income to qualify for the program and must hand over their credit cards to the counselor. As with any kind of service provider, care needs to be taken to ensure you are working with a reputable, experienced firm.

4. Bankruptcy


  • The individual is granted an "immediate stay" by the court, which ends creditors' attempts to collect debt owed
  • The court liquidates assets to pay creditors; any remaining unpaid debt is officially "discharged"
  • Creates a "clean slate," so individual can begin to rebuild financial life


  • Individuals' ability to borrow money and gain credit is hampered for ten years
  • Court will require liquidation of most assets, depending on type of bankruptcy

Bankruptcy is a legal financial action that individuals and businesses turn to when they do not have enough money to pay their debts. When an individual enters into bankruptcy — which requires hiring a lawyer — the court assumes responsibility for the individual's debts and assets and makes judgments about what to liquidate, whom to pay and what debts will be written off. Creditors are required to follow the judge's decisions.

Bankruptcy can be an extreme method for dealing with debt, because the individual must liquidate most or all assets and will carry bankruptcy on their credit report for ten years. But when there is no foreseeable way for a person to pay off their debts, bankruptcy can provide a fresh start.

5. DIY Debt Relief


  • Involves no extra fees, but requires ironclad commitment
  • After one or two cards are paid off, an individual might be able to transfer remaining debt to lower-interest-rate cards
  • Preserves and then improves credit score, as all debts are paid in full


  • The time to resolve the debt is dependent upon income-to-debt ratio
  • Not a workable solution for those carrying extremely high debt loads

Any DIY method is best approached with a specific plan and a serious commitment. An individual definitely can do all the work and labor of getting themselves out of debt without paying any fees by following these two steps: 1) rework their budget to cut out all the extras and 2) direct as much money as possible to debt obligations each month.

There are two classic methods for DIY Debt Relief: the Avalanche and the Snowball methods. Each starts with a debt analysis that totals what's owed, notes what the interest rate is for each debt, and ranks the debts in order of amount owed.

  • The Avalanche: In this method, the person focuses on paying down the debt with the highest interest rate first, paying only the minimums on all other debt. The goal here is to pay down the most expensive debt — meaning the debt that costs the most money, with compounding interest being calculated and added every month — before moving on to the next highest-interest debt
  • In the Snowball Method, the first debt that gets paid off is the smallest debt. The thinking behind this strategy is that it is motivating to get small wins under the belt, creating a sense of accomplishment that can help people stick with the austerity measures they've put in place to get out of debt.