Todd Christensen Profile Picture
Staff Writer at Debt Reduction Services

You can find relief from credit cards with debt settlement, bankruptcy, and consolidation.

Consumer debt…how would I love to pay thee off! Let me count the ways…

We live in a culture where the burden of consumer debt has not only become acceptable but even expected. Since the average household in America carries nearly $17,000 of credit card debt, a large percentage of American households are looking for the best way to pay off their debt. Here are descriptions of some of the most popular options:

Debt Settlement Companies (or “Negotiators”)

When credit card debt becomes overwhelming, too many individuals trust emails and ads that claim to help out by negotiating down the total balance of money owed-also known as debt settlement.
As in most cases in life, if it sounds too good to be true, it probably is. Past governmental investigations of widely known debt settlement companies concluded that “fraudulent, abusive and deceptive practices” were occurring within the industry.

While the government attempts to reign in such harmful behavior, it is impossible to keep up with the rapid emergence of these companies. To ensure you don’t fall victim, here are a few common myths promoted by the debt settlement industry, followed by their corresponding realities:

1. MYTH: “Your credit score will only drop a few points while on the program.”
REALITY: FICO (the pioneering credit score company) has indicated that scores typically fall 65 to 125 points when a consumer stops making payments to their creditors.

2. MYTH: “Creditors generally report settled debts as ‘paid in full’ or ‘paid as agreed.’”
REALITY: Again, according to FICO, creditors typically report such accounts as “settlement accepted on the account” or “settled for less than full balance.”

3. MYTH: “Some settlement companies are associated with federal aid initiatives.”
REALITY: Such claims are not just deceptive but fraudulent. The government does not provide for any such consumer debt relief, nor is there a government office or agency set up to manage such a program.

4. MYTH: “Anyone can get their credit card debts settled for half of what they owe.”
REALITY: Credit card companies enact settlements with consumers experiencing true financial hardship. Creditors are unlikely to forgive any portion of a debt’s principle without good reason to believe the consumer is otherwise unable to meet their obligations.

Even when a company is legitimate, this method isn’t guaranteed to be effective. True settlement companies do try to work with creditors to lower the amount you owe, but charge you a monthly fee to do so and additionally as much as 25% of whatever settlement they might reach in your behalf. Even when successful, you’re likely to pay about 80% of the original debt due to these fees and other taxes. In the end, is there any real relief to be had?

It is also critically important to note that as part of the settlement, credit companies “charge off” forgiven debt which will negatively affect your credit score for up to 7 years.


Bankruptcy CourtGenerally considered the last of all debt-relief options, bankruptcy can protect your assets from creditors and may remove your obligations to pay your debts at all. You will still be required to pay certain types of debt, such as government student loans, fines and child support. This debt solution is often sought because it can be completed in a matter of months, however bankruptcies stay on credit reports and negatively impact credit scores for 7-10 years.

This may make it difficult to secure a loan with a reasonable amount of interest, if you can be approved at all. Bankruptcy may also limit one’s ability to get jobs (e.g. law enforcement, finance, government), affect one’s military security clearance, and even increase the premiums you pay for car insurance.

This method also fails to teach clients important lessons of personal finance and how to make improvements in order to avoid debt in the future. Statistics show that 16% of all bankruptcy cases are repeat filers. Debt like a flesh wound can require a more permanent fix such as proper cleaning and stitches. Bankruptcy only offers a band aid. If clients do not take the steps to increase income, secure medical insurance, or curb spending habits, they will likely find themselves in a similar situation down the road. It would be wise to realize that bankruptcy can only be pursued every 2-8 eight years depending on type of filing and debt. If it is resorted to now, it may not be an option later on.

Lastly, many filers find bankruptcy too complicated to complete on their own. While an attorney comes with a cost, it is sometimes the better option than going it alone.

Debt Consolidation Program

Counselor-Filling-Out-PaperworkThis type of program is offered through credit counseling agencies, such as Debt Reduction Services, and helps you pay off dollar-for-dollar what you owe, but generally at better interest rates and monthly payments. A notation on your credit report that you are participating in Debt Consolidation (which usually prohibits you from getting a new credit card) is typically removed upon completion of the program. Debt Consolidation Programs generally take 3-5 years to complete, depending on the amount of accumulated debt. There is no direct impact on your credit report.

When considering ways to address your debt, most independent, financial specialists would suggest that you first contact a reputable credit counselor for a few good reasons.

First, besides providing you with strategies for eliminating your debt, credit counselors will also help you address the root cause of your financial challenges: personal budgeting, spending controls and learning how to use credit wisely.
Second, even including monthly account maintenance fees, the client pays a fraction of what they would if they were to attempt to pay their debt on their own because of lowered interest rates and fees waived as negotiated by the agency.
Third, a debt consolidation program impacts a consumer’s credit the least. A temporary note on one’s report is far better than destroying your credit history for the next 7 years or more. Additionally, documents issued by a credit counseling agency such as letters of recommendation, educational certificates, and verification of program completion can aid clients in the future when seeking loans or proceeding to rebuild credit.

The best repayment option for your debt should be affordable, effective, and will give you the best opportunity to make long-term improvements to your personal finances.

Related article: Debt Repayment Options

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  1. Marie T

    Hello I need some help I’m $55,900 in Credit card debt and I still owe $10,000 on my car. I’ve lost one income and I’m unable to get q second job. Can u please help and point me into the right direction of someone that can help im trying not to file for bankrupcty buy at this point I’m put of Ideas

    • Todd Christensen

      Thank you, Marie, for reaching out. When it comes to debts, we really only have 4 basic options:
      1) pay it off on our own (minimum payments, more than minimum, working with creditors to lower interest rates, possible home equity or debt consolidation loan, etc.)
      2) use a nonprofit credit counseling agency like Debt Reduction Services, Inc. to have creditors lower your interest rates and have you out of debt in 5 years or less (888-449-0010 would be the phone number to call if you are interested)
      3) look into debt settlement options (you can do on your own if you have a large tax return, inheritance or other cash resource to negotiate with – just be wary of paying any agency, nonprofit or not, to do it for you – fees run into the 25% range, and the likelihood of being sued by your creditors can be pretty high)
      4) speak with a bankruptcy attorney to discuss the options of chapter 7 or chapter 13
      Please let us know if you would like to discuss the specifics of your situation to see what ideas or resources we can share with you. (888) 449-0010 is the number for our certified counselors.
      All the best,

  2. Rick Munster

    Thank you, Morris, we’re glad you find our resources useful!

  3. Morris Himes

    I’m going to tell my little brother, that he should also visit this website
    on regular basis to obtain updated from latest news update.

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