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How did you get so deeply in debt? Is it because you lost your job as a result of the Great Recession? Or maybe you were sick and hit with a huge stack of medical bills. Did you just let credit card debt spin out of control? None of that matters as much as what you could do now to reduce that debt.
A second way that many people have chosen to reduce their debts is to get a loan and use its proceeds to pay off all of their other debts. If you were to choose this option, it would do nothing to reduce your debts short-term but should result in a lower interest rate than the average interest rate you're paying on your current debts. Plus, you should have a much lower monthly payment as you will have longer terms – or the number of years that will be required to pay off the loan. Of course, this can be both a blessing and a curse.
Here’s a short video with more information about debt consolidation loans and how they work.
Path #3: Get a second job
A second good way to reduce debt is to get a second job and use the money you earn to pay down your debts. Here is an illustration of this. Suppose you were $20,000 in debt and got a second job where you earned $500 a month and used it to pay off your debt. In this case, you could clear that $20,000 debt in about 40 months.
Path #4: Get a second job and cut your spending
Another fast way to reduce your debts is to cut your spending, get a second job and snowball your debts. If you owed $20,000, reduced your spending by $500 a month, got a job where you netted $500 a month and snowballed your debts, you could probably be debt-free in about year. For that matter, we have seen examples of where people have done this and been able to clear $50,000 of debt in just a few years.
Path #5: Declare bankruptcy
It's no fun to have a bankruptcy in your credit file but this can be a quick way to reduce your debt. There are two types of bankruptcies available to individuals – a chapter 7 and a chapter 13. Most people who are struggling with debt choose a chapter 7 because it's a way to get most unsecured debts discharged and in six months or less. Because of the black mark a bankruptcy will leave your credit file, it's something you should not consider seriously unless you owe more than $10,000 and can see absolutely no way to repay it. Most experts say that a chapter 7 bankruptcy will lower your credit score by about 200 points. This could be enough to drop you from having "good credit" to "poor credit" or even "bad credit." You would have a hard time getting any new credit for two to three years. And a bankruptcy will stay in your public record for the rest of your life.
Path #6: Debt settlement
Debt settlement or debt negotiation as it is sometimes called is a way to get debts reduced and without having to file for bankruptcy. If you're a reasonably good negotiator you could contact your creditors and make settlement offers – for much less than you actually owe. However, for this to work you must be at least six months behind in your debt payments. You will also need to have on hand enough cash to pay for any settlements you are able to negotiate
Professional debt settlement
As an alternative to DIY debt settlement, you could contract with a debt settlement company to handle the negotiations for you. Companies such as National Debt Relief have experienced debt counselors who have excellent relationships with credit card and personal loan companies and can almost always negotiate better settlements then you could yourself. Plus, when you work with a debt settlement company this eliminates the need to have the cash on hand to pay off your settlements. Instead, you would have an affordable payment plan where you would write one check a month to the debt settlement company until you become totally debt free.