Every single year more and more Americans find themselves stuck in debt. Unfortunately not many know about or understand the various methods of debt relief available to them. In this article I will briefly go over the top three methods of debt relief, which are debt consolidation loans, credit counseling programs, and debt settlement. Each method has their respective pro's and con's and not any single one of these methods will work for everyone. I will also describe the ideal candidate for each.

What is a Debt Consolidation Loan?

A debt consolidation loan is a loan that you use to pay off other debts such as credit cards or smaller high interest loans. The reason people get debt consolidation loans is twofold, one because usually the interest will be lower than that they were paying with credit cards, and two because it makes handling the bills each month much easier. Now the debtor only has to make one payment on the loan instead of many to all the various creditors they had before. The problem with these loans is that they are not very easy to get. In most cases they are secured loans meaning you must put something up for collateral that can be taken away if you default on the loan. Most of the time people use the equity in their homes, which can be a very costly mistake. Statistics show that most people who obtain debt consolidation loans end up right back where they were with credit card debt within five years. Which can put you at risk of having to go bankrupt and possible lose your home.

Who is best for Debt Consolidation Loans?

The best candidate for a debt consolidation loan is someone who can first off get one. If you do qualify then the you must really do a little soul searching. What I mean by this is make sure you are able to truly break the need to continue using credit cards and other revolving debts. Because if you end up back in debt again the next time will not be so easy. Staring down the barrel at bankruptcy or foreclosure is not a pleasant experience.

What is a Credit Counseling Program?

A credit counseling program is very similar to a debt consolidation loan, except it is not actually a loan. The benefits of credit counseling are lower interest and one monthly payment. What you do is make your monthly payment to the credit counseling agency in then they disperse it to your creditors for you. The drawback here is usually the monthly payments are not going to be much less than what you were putting out towards monthly minimum payments on your credit cards. You do however get out of debt much faster than paying the minimum, because during the program the payment will remain fixed which speeds the process up. One startling fact about credit counseling is that around 75% of people who enroll in these programs fail to ever graduate. The reason is if you so much as miss one payment the credit card companies themselves can kick you off of the program and not allow you to enter into another one for up to a year. Which will put your interest rate back to where it was previously.

Who is best for Credit Counseling?

The people best suited for a credit counseling program are those who do not have much of any problem making their minimum payments in the first place. And those who have a relatively low amount of debt, around $7,000 or less. Before you enroll into this type of program you must be sure that your financial situation is pretty stable, meaning your income and having backup money in case of an emergency. Remember you do not want to miss any payments on this type of a program or you might be kicked off.

What is Debt Settlement?

Debt settlement is much different than either a debt consolidation loan or a credit counseling program. With settlement you are actually going to reduce the amount of the balance you have to pay back, not the interest rate. The benefits of settling are twofold, first off you can save a tremendous amount of money seeing that the balance will be reduced in many cases up to 50%. The second is the fact that you will get out of debt very quickly, usually within less than two years. Now debt settlement does come with its drawbacks. In order for any creditor to be willing to settle the debt must be defaulted on. Meaning you must fall behind on your bills. During this process your credit score will go down, especially for those that are on a current payment status. This damage however is not permanent nor is it public like a bankruptcy. Another issue is that occasionally creditors will attempt to sue somebody for what is owed. Plus you will no doubt be receiving collections calls.

Who is best for Debt Settlement?

The best candidate for settlement are those that are in too deep to realistically every get out of debt, without filing for bankruptcy. Usually settlement candidates are over $10,000 in debt and have a real hard time maintaining payments, or have already begun to fall behind. Settlement does have its drawbacks, but it is the fastest method of debt relief that will allow you to save the most amount of money.

As you can see there is no one shoe fits all type of deal for those people who are in debt. It really comes down to the financial situation of each person. For those that are not to deep in debt credit counseling may be the best choice. For the very disciplined that can obtain a debt consolidation loan and stay out of debt, that might be the best move. And for those who realize it has gotten almost out of control and can't keep up then settlement could be the savior from bankruptcy.