Credit Happy Will Help You Understand Your Debt Relief Options

Leave the burden of debt behind. Find the best debt relief options today

Understand Your Debt Relief Options

These tested pay down methods should be your first step.

Debt Snowball Method


The debt snowball method is one of the easiest to understand options out there, and it is also one of the most effective. It really only requires that you pay off your lowest-balance credit cards first, while continuing to make minimum payments on your larger debts. Once the smallest debts are paid off, you move on to the next lowest. To get started, follow these steps:


  • List all your credit card debts, beginning with the lowest amount owed. If two debts are roughly the same, the one with the higher interest should be listed first.
  • Pay the minimum payment on all credit card debts.
  • All extra cash should be directed to paying off your smallest debt load. Pay the minimum payment, plus as much extra as you can until that debt is paid off.
  • When you pay off a card, roll the old minimum payment and any extra cash into the payment for the next lowest.
  • Repeat this process (snowballing) until you’ve paid off all your debts.

See this in-depth explanation of credit card debt payment options.

The Debt Avalanche Method


This method is similar to the debt snowball method, but there are some key differences. It’s also called the “debt stacking” method. Instead of focusing on the balances of your credit cards, you’ll focus on the interest rate being charged. This is the best option for those who have very high-interest credit cards. Of course, you’ll continue to make minimum payments on all cards throughout the process. Note that this method can include other debts, such as mortgage payments, car loans, and the like.


  • List all of your credit card debts, beginning with the highest interest cards and moving to the lowest. If two cards have roughly the same interest, the smallest debt should be paid first.
  • Pay the minimum amount plus any extra money you have on your highest interest debt until it is paid off.
  • When you’ve paid off your highest interest debt, roll that minimum payment and any extra money into paying off the next highest, and so on.
  • Continue this process for all of your debts, rolling the minimum payments and any extra cash available into the next lowest debt until you are debt-free.


The Milestone/Chunk Method


This particular method doesn’t carry the same financial benefits that the debt snowball and debt avalanche methods do, but it can help those with a lot of credit card debt get some perspective. Often, the thought of paying off tens of thousands of dollars in debt is incredibly daunting. That can sap your momentum. Instead, break your debt up into chunks, or set milestones. Here’s an example:


Suppose you owe $25,000 in credit card debt. That’s a big number – one that most of us would happily avoid thinking about. However, if you break that into chunks, it becomes easier to deal with. For example, rather than $25,000 in a single amount, try thinking about paying off your debt in $5,000 chunks – you’d only have five milestones to reach before you were completely free of credit card debt.


With this method, you get more peace of mind about your debt payments, and you can incorporate it with other methods, too.


The Debt Snowflake Method


The milestone/chunk method is a great option to combine with the debt snowflake method. Where the snowball and avalanche methods require that you budget for additional cash to pay down debt, the snowflake method is a little different.


In this scenario, you’ll take small amounts of cash that you discover during the month and pay those amounts toward your debt. For example, instead of buying that $7 cup of coffee every day, you could put that money toward paying off credit card debt. Just skipping your costly cup of joe each morning for a month could give you an estimated $210 extra per month (based on $7 per cup), or $2,555 per year.

If You Need Professional Debt Relief Options

If you have looked into debt relief, odds are you have come to realize that the term “debt relief” can mean two things. First, it can mean that the terms of your debt are changed. Secondly, it can mean that the amount of your debt has been changed — the goal of both being that you can get back on your feet in a more timely manner.

However, there is no magic wand or spell that will make your debt just disappear. And unfortunately, debt-relief programs are not the right solution for everyone. Because of this, you must understand what the consequences of these options might be.

Depending on the kinds of debt relief programs that you qualify for, your options for debt relief could involve:

  • Changing your interest rate or payment schedule in a way that lowers your monthly payment
  • Wiping the debt out completely by filing for bankruptcy
  • Taking a debt consolidation loan
  • Convincing your creditors to take a lower amount than what is actually owed
  • Taking matters into your own hands with the do-it-yourself approach.

Debt Relief Through Debt Management Plans

If you qualify for a debt management plan, odds are you will be able to pay off your unsecured debts, such as lines of credit and credit cards. This can be done either at a reduced interest rate, on a new schedule or with fees waived. In most cases, debt relief management plans work in such a way that you make a single payment every month to a credit counseling agency. This agency is then responsible for distributing it among all of your creditors.

When you take part in a debt management plan, your credit card accounts will be closed. Additionally, most who participate have to do without credit cards until everything is paid off, and the plan is complete.

It is important to note that debt management plans themselves do not impact your credit score. However, closing credit card accounts can. In most cases, once you have completed the debt management plan, you can apply for credit again.


Debt Relief Through a Debt Consolidation Loan

If you do not have an insurmountable amount of debt, you might want to consider getting a debt consolidation loan.  This can be a great option as it won’t hurt your credit score, and as long as your payments are made on time, your score should actually increase. Those options won’t hurt your credit; as long as you make the payments.

If you decide to go this route, it is crucial that you have a plan that will keep you from running up your debt again. It can also can be hard to qualify for a new loan or credit card when you are deeply in debt. This can often lead to missed payments or high balances, and those can really hurt your credit standing.

Debt Relief Through Debt Settlement

In a lot of ways, debt settlement is a financial game of chicken. Because of this, a lot of business professionals do not recommend this route and believe that bankruptcy is a better option. Debt settlement in many ways is the last resort for people who face an overwhelming amount of debt but cannot qualify for bankruptcy.

This is because debt settlement companies generally ask you to stop paying your creditors. Instead, you are asked to put your hard-earned money into an account that they control. As the money accumulates in your account, you fall further behind on payments. They approach each of your creditors and use the fear of not getting anything in hopes of motivating your creditors to accept a smaller lump-sum offer. Your creditors are then required to sign a document stating that they will not pursue you for balance. One of the reasons that so many professionals hesitate to recommend this option is that doing it can result in legal action, collections calls, and penalty fees.

The Do-It-Yourself Debt Relief Approach

The do-it-yourself option is unique in that nothing is stopping you from borrowing from the options above to create your own debt relief plan. You can do this by educating yourself on debt negotiation and settlements, and you can contact your creditors in hopes of setting up an agreement.

Debt Relief Through Bankruptcy

There is little point in entering a debt management program or a debt settlement plan if you are not going to be able to make the agreed-upon payments. That is why so many finance professionals recommend speaking with a bankruptcy attorney beforehand.  By doing this before you pursue any debt relief strategy, you will be able to make a more informed choice. Often the initial consultations are free, and if you don’t qualify for bankruptcy, you can then move on to other options.

Chapter 7

Perhaps the most well-known form of bankruptcy is Chapter 7 liquidation. This form of bankruptcy can erase most kinds of credit card debt, as well as unsecured personal loans and medical debt. It is also a fairly quick process and can be completed in under six months. Here is some additional information on this option:

  • It isn’t always necessary. If you are considered “judgment proof,” which means that you don’t have any sort of regular income or property that a creditor can go after. This is because while creditors can still sue you and get a judgment, they won’t be able to actually collect anything.
  • If you don’t change your ways and allow debts to pile up again, you can not file for Chapter 7 bankruptcy for at least eight years.
  • Chapter 7 will not erase any unpaid child support, or taxes owed and often does not take care of student loan debt.
  • Filing for Chapter 7 bankruptcy will decimate your credit scores. It will also stay on your credit report for up to 10 years, even after you restore your credit history. You need to know this before filing because this is no small issue. Poor credit history can affect your eligibility for a mortgage, apartment lease, certain jobs, and how much you pay for car insurance.
  • If you have a co-signer for any of your debts by filing for Chapter 7 of bankruptcy will make that co-signer entirely responsible for the debt.

Another thing that a lot of people don’t realize is that not everyone with a lot of debt qualifies for Chapter 7. If your income is above a certain amount or you have a home that you want to save from foreclosure, you might have to file for Chapter 13 bankruptcy.

Chapter 13

Chapter 13 can be either a three- or five-year court-approved repayment plan. This plan is based on your income as well as your debts. If you are able to follow through with the plan for the three or five years, the remaining unsecured debt is then discharged. While Chapter 13 does take longer than a Chapter 7 – you will get to keep your property should you follow through with the plan. A Chapter 13 bankruptcy only stays on your credit report for seven years once filed.

Final Thoughts on Debt Relief Options

Dealing with debt isn’t fun. It doesn’t matter who you are, what you do for a living, where you live – when you have debt, you have a problem. The above solutions all come with their benefits and drawbacks – some more than others. Prior to deciding what you are going to do, it is vital that you are fully aware of what debts you have. You should also know what your interest rates are on them.

Maybe you want to start a family, maybe you have a family already, maybe you want to buy a house, or move to a better school district, maybe you want to help your aging parents, or perhaps you are just sick of paying for your past instead of planning ahead for your future. Whatever your why making it something so powerful that when you want to stop with your debt repayment plan – whatever route you take – you are able to remind yourself that you and your why are worth the hard work and sacrifice.

Good luck.

Credit Happy