3 Debt Relief Options If You Can No Longer Make Minimum Payments

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debt relief options
When you obtain your credit reports, they will probably confirm what you already know about your finances. You may see large outstanding balances that seem insurmountable. The monthly payments may exceed your take home pay. So what can you do when you’re drowning, but don’t want to deal with the long term effects of bankruptcy?

 White Wealth Belt (WWB)
Jumpstart Training Mini-Course

  1. White Wealth Belt: Introduction
  2. Cleaning Up Your Credit Report
  3. 3 Debt Relief Options If You Can No Longer Make Minimum Payments
  4. Creating a Household Budget
  5. Strategy for Paying Off Debts Faster
  6. Saving and Investing Strategy & Conclusion


As much as it is ideal to pay off the minimum payments plus a little more, there are times when no matter what you do to scrimp and save, even the minimum payments have skyrocketed beyond your reach.  You’re not doomed!

There are debt relief options available for you.  However, there is no single option that is right for everyone, so get to know what they are and how they differ.  This will help you to choose the one that will best suit your needs.

Credit Counseling

Credit counseling is a type of service that allows you to sit down with a professional so that you can discover how to avoid any more debts that you will not be capable of repaying.  This expert will assist you in creating a Debt Management Plan (DMP) and Budget.  They may touch briefly on your spending habits and how to correct them, but the primary focus will be to create and use a plan in order to provide yourself with realistic debt relief.

A DMP created with the help of credit counseling will also frequently include negotiations with the various creditors to whom you owe money. The DMP may either help you to better organize your money so that you can repay the creditor cards as the situation is now, or it may be used with the negotiations to lower interest rates, monthly payments, and/or fees.

Debt Consolidation

Debt consolidation involves taking out a new loan in order to pay off several other ones.  In the case of credit card debt, it would mean that you’d take out a single loan in the amount that you owe on your credit cards.  That amount is used to pay off each of the credit cards, to bring their balance to zero.

With debt consolidation, you have the opportunity to have to make a single payment every month, preferably at a lower interest rate.  This way, the monthly payments and the interest rates are lowered, making the payments achievable and faster to pay off than at the higher interest rates charged by the credit card companies.

Debt Settlement

Debt settlement, which is also known as credit settlement, debt negotiation, and debt arbitration, is a method of reducing debt where a debt settlement expert will negotiate with your credit card companies on your behalf in order to reduce the balance that you owe in exchange for making a lump sum full payment.

Of course, to make that lump sum payment, you need to have the money available to do it.  To build this amount, the debt settlement company will use a third party “trust” account in which you can build your funds in order to make the settlement.  Look for a debt settlement company that uses a trust account insured with the Federal Deposit Insurance Corporation (FDIC), as this is the form used by the most reputable companies.

These special trust accounts, formally called “special purpose accounts” will often be opened at a bank where a bank agent will maintain it for a monthly fee.  In this case, instead of paying the credit card company, your monthly payments go to the debt settlement company, or the bank where the special purpose account is held.

Pay close attention to the company’s enrollment contract, as the fees can currently range anywhere from 10 to 75 percent of your total debt. Also, pay attention to whether or not the fees are refundable.  This will depend on whether the company is entitled to its fees upon signing, upon the completion of the negotiations, or at the first settlement.

A Comparison of These Services

Credit Counseling

Debt Consolidation

Debt Settlement

Service: A professional will help you to manage your finances and will negotiate with the credit card companies to reduce your monthly payments to make them more affordable. Service: A personal loan is taken out in order to pay off the credit card debt in favor of a single lower monthly payment at a reduced interest rate. Service: A professional will negotiate with the credit card companies for a pre-set lump sum payment amount which will be paid off by way of a trust fund established with a third party at a more affordable monthly payment and interest rate.
Cost: One time enrollment fee and a monthly fee. Cost: The loan’s interest rate. Cost: An initial fee as well as a percentage of the loan amount.
Best suited to: People who can’t qualify for a loan but who need assistance making their credit card payments. Best suited to: People who have a good or excellent credit score, but who have debts from multiple cards that they would like to consolidate for a better interest rate. Best suited to: People who have a large amount of debt from several credit cards and who have experienced delinquencies that have damaged their credit scores.
Positive note: Reviewing your case with a professional counselor has no fee or obligation attached. Positive note: Quotes are available for free and you can “comparison shop” among several lenders to find the best one. Positive note: When the right company and program is chosen, this can be an effective alternative to bankruptcy.
Watch out for: The terms of service and rates that are charged, before you sign anything. Watch out for: Lenders that will give you a loan regardless of a weak or bad credit score.  Often, there will be sneaky, expensive terms such as high interest rates, surprise balloon payments, or penalties for actions such as paying it off early. Watch out for: Debt settlement companies with sketchy reputations.  Numerous late payments and collection records could lead to significant damage to your credit history. You will still need to pay taxes on the forgiven debt. Before signing up, compare several debt settlement companies and compare their practices.  Some are unethical and are in business to make money, not to help you. Understand everything before you sign.
How to be sure: Ask a lot of questions, take notes, and have your case reviewed by more than one counselor to make sure that you have found the best service for your needs. How to be sure: In order to qualify, you will need to have had any bankruptcies discharged by a minimum of two years, you should have a credit score at a minimum of 580, and you need to have a clean repayment history for several months, if not years. How to be sure: This service should be used as a last resort.  If it appears that you have no choice other than bankruptcy, this option may help you if you find the right company with the proper options for you.


The Better Business Bureau can be integral to helping you to choose the right company once you know the service that will be best for your needs. They also offer additional information about these services at: http://www.bbb.org/us/article/bbb-on-differences-between-debt-consolidation-debt-negotiation-and-debt-elimination-plans-9350

Action Steps:

  • If you can’t pay your minimum balances every month, take action with professional help.
  • Learn about credit counseling, debt consolidation, and debt settlement.
  • Find out which service is best for you and which ones you qualify to use.
  • Comparison shop for the right company to provide your chosen service.
  • Use the Better Business Bureau (BBB) to help to confirm that you have made the right choice.

>>> Creating a Household Budget>>> 

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