Figuring Out the Best Debt Relief Option (Guest Post)

When you’re looking at al the debt relief options available, you can easily become overwhelmed trying to decide which is the best for you. There’s credit counseling, debt consolidation, debt settlement, and of course, you can pay your debt off on your own. You can call up a few companies and interview them about the solutions you offer, but that could take several hours a day. An alternative is to use a simply debt planner calculator, like the one from CNN Money, to figure out the best way to get out of debt.

To start, you need to know some basic information about your debt: who you owe, the balance owed, your interest rate, and your minimum payment. To compare the alternative of paying on your own, you’ll need to know how much you can afford to put toward your debt each month.

Option 1: Paying on your own

To evaluate this option, put all your debt into the calculator. If you have more than 5 accounts, click the button that lets you add more. Then, choose the “Fixed payments” option and enter the amount you can afford to pay each month, preferably more than the minimum. The calculator shows you how long it will take to pay off your debt with that payment amount.

Option 2: Credit counseling

Credit counseling puts you on a debt management plan to pay off your debt. The goal is to lower your interest rate and minimum payment and have your debt repaid in 4 to 6 years. To see repayment under credit counseling, lower your interest rate by 1% and your minimum payment by 30% (multiply all your minimum payments by .7). Then, select the “Debt-free deadline” option and enter 4 years. The result will show you the monthly payment needed to repay your debt in 4 years. You can also do 5 and 6 years for comparison.

Option 3: Debt consolidation

Through debt consolidation, you pay off all your debts with a loan and then pay off that loan. The debt planner calculator would help you estimate debt consolidation too. To do this, total your balances. Then, enter just one debt in the calculator, with a balance equal to your total balances. Enter the interest rate you’d expect, preferably lower than your current average rates. For the monthly payment, enter anything, but make it low. Then, choose the “Debt-free deadline” option and choose the loan term you’d expect to get. The result would show you the monthly payment you’d make to pay your debt off in that time.

Option 4: Debt settlement

Debt settlement’s goal is to have repay your debt, but for a fraction of your total balances. Calculate debt settlement payments similar to what you did for debt consolidation. Use just one balance, but make the balance 60% of what you currently owe (multiply your total balances by .6). Enter 0% for the interest rate and $1 for the minimum payment. Then, enter 5 years for the Debt-free deadline. The result shows you how much you’d have to set aside each month to settle your debt at an average 60% in five years. You can play around with the numbers, for example use 40% of your debt, or 4 years for the Debt-free deadline.

Compare the results from each of your calculations to decide the best option for you. Base your decision not only on the monthly payment, but also the time it takes to pay off your debt. Finally, don’t forget to consider any drawbacks associated with each option.

This guest post was written by Eliza Collins, who is a personal finance writer specializing in saving strategies, alternative income and debt relief options. You can read more of her articles at the debt settlement blog.

Author: Lulu

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3 Comments

  1. When I decided to start looking into Debt Relief I had over $20,000 in Credit Card debt and other forms of personal loans. I went with a “Debt Elimination” company and after 18 months I hadn’t seen any progress on my accounts. When I asked why this was they gave me the run around and I ended up dropping the company and losing a lot in fees. At that point I was pretty much ready to continue making the minimum payments to my creditors for the next 20 or 30 years when a friend recommended I look into Debt Settlement. I inquired for info online and was contacted by a company named Consumer Debt Help Association. After speaking with their Debt Consultant I finally felt confident that I would get out of my money struggles. They offered 12-48 month programs and had no monthly or upfront fees. I checked out their credentials and when I saw they were A-rated with the BBB and had over 15 years experience in debt relief I was sure I made the right choice. When all was said and done they got me a 70% reduction and saved me more then $14,000. I definitely recommend people looking into Consumer Debt Help Association. I found them on google and this is the number I called (888)855-3672.

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  2. I believe that the best option is to pay on your own since this is the only one that will not lead to more debt because if you get another loan to pay the existing one or you pay only the minimun you will end up paying more money in the end. Of course if there is no way to pay on your own I would negotiate with the bank to lower the rates or even cut a part of my debt because there would be no other way to pay them

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  3. I think the best option is to pay on their own and it will not lead to greater debt, because if you get a new loan to pay existing or that you only pay the minimum you will end up paying more money at the end. Of course, if there is no way to pay on their own that could negotiate with the bank to reduce the rate or even cut some of my debt, as there would be another way to pay.

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