If you’re in debt, you need to read this comparison of 3 ways to reduce or eliminate your debt

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Carrying around extra debt can feel like an excruciating burden. You might also feel ashamed of your debt load. But if you think you’re alone, you are far from it. U.S. consumer debt recently reached $4 trillion, according to the Federal Reserve. The average U.S. household has a startling amount of debt of $135,768. This debt breaks down into the following:

  • $6,929 in credit card and other revolving debt
  • $28,033 in auto loans
  • $49,671 of student loans

Many households also have mortgage debt, personal loans and other types of debt that add to this figure. A Harris Poll revealed that 1 out of 11 Americans believed that they would never be completely free of credit card debt while another 1 in 3 people are afraid they will max out their credit card when making a large purchase. With some of the highest interest rates of all time (the average being 17.41%), overall student loan debt at $1.5 trillion, rising costs of living and other stiff expenses create the perfect storm that may impossible to get out of.

However, there are a variety of debt relief options that may help remove or reduce this debt and get that heavy burden off your shoulders. Here are a few of your options, their pros and cons and information about when each option might be best for you.

Debt Consolidation

Debt consolidation puts all of your debts together so that you have one payment instead of several. This can potentially help reduce the interest rate, streamline your payments and ease the financial stress. With this option, you usually take out a personal loan and use the funds to pay off all of your other creditors. You then make payments toward your loan. In some situations, people use their home equity to acquire this loan.

This option offers the following advantages:

  • You may be able to reduce your interest rate, which can save you money in the long time.
  • You may pay a lower monthly payment for the loan than all of the smaller payments that you make to multiple companies.
  • You can avoid multiple service charges from various creditors since you will only have one creditor.
  • It is easier to keep track of your finances when only making one payment.

However, this option also has several drawbacks, including:

  • You may be risking your home. While you might have homestead exemption protection from other creditors, you will lose this protection if you secure the loan with your home.
  • If you don’t change your spending habits and budget, you can wind up racking up more debt, which you would then have to make the loan payments and the additional debt payments, being in an even worse financial position.
  • The interest rate isn’t always lower, which can cost more money in the long run.
  • In most situations, you will wind up paying for a longer period of time, which might cost more money to pay off the debt.
  • Your other accounts won’t be closed, so you might be tempted to run up more balances on them.
  • You still owe the same amount of money. You haven’t eliminated the debt by consolidating it.
  • You might have to pay closing costs.

Debt consolidation can be a good option for you if you still have decent credit and can qualify for a low- or no-interest debt consolidation loan, you have adequate income to make your payments and you have a plan to address the underlying problems that caused you to get in debt in the first place.

Debt consolidation might be a bad idea for you if the company you are working with promises a too-good-to-be-true outcome, which many do as evidenced by this being the most common complaint that consumers make to the Federal Trade Commission. It’s also a bad idea if you don’t have a plan to avoid getting in debt in the future or you can’t afford to make the payments over a sustained period of time.

Debt Relief Companies

Debt relief companies settle debts with creditors by offering a lump-sum payment to your creditors for less money than you really owe.

Advantages of debt settlement include the following:

  • You may be able to eliminate debt, so you can feel less stressed out.
  • You can keep more money in your pocket by not having to pay the amount that you really owe.
  • You can stop debt collection calls.

Disadvantages of debt settlement include:

  • You have to have a large amount of money available to pay off debt.
  • Debt relief companies charge a service fee (often between $1,500 to $3,500), which increases the overall cost to eliminate the debt.
  • Paying off the debt won’t necessarily guarantee that you won’t rack up more debt.
  • You might be able to negotiate the debts on your own without having to pay a third party.
  • The creditors will probably report that you did not pay the full amount, so your credit can be wrecked.

Debt settlement can be a good idea if you have the funds necessary to pay a lump-sum. It’s a bad idea if you don’t have money for lump-sum payments or you want to maintain good credit.

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For most people, filing bankruptcy is a last resort. Filing bankruptcy can have a long-lasting impact on your credit. Chapter 7 bankruptcy wipes out your debt while Chapter 13 puts you on a five-year repayment plan that the court orders, making you stick to a strict budget to get bankruptcy relief. A lot of people have trouble maintaining this budget, and their case may be dismissed if they don’t comply with it. 

Bankruptcy’s probably not the right solution for you if you:

  • Owe most debt for tax debt, student loans or unpaid child support
  • You don’t own anything that creditors can take
  • You receive Social Security or welfare
  • You can afford to make debt payments by restructuring your budget yourself
  • You don’t want to pay court and filing costs, which are typically between $1,000 and $2,500 for a simple case

Filing bankruptcy results in an “automatic stay” in which all collection efforts must stop. Debt collectors have to stop calling you. Your car company has to stop trying to repossess your vehicle, and a creditor has to stop trying to garnish your wages. Bankruptcy might be a good fit for you if:

  • Your credit has already been damaged
  • You can’t afford your everyday necessities and debt repayment
  • Your wages might be garnished
  • Your assets are at risk


You don’t have to let debt crush you. You can take one of these debt relief options to get rid of that pesky debt and ease your stress level.

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