Debt can be an overwhelming item on our monthly budgets. While it should take up between 0-5% of your monthly budget, I have seen families where it is 50% of their budget. You can’t survive let alone thrive in that type of scenario. So what are your options? Let’s look at the top 5 options for dealing with credit card debt.

Minimum Payments

Minimum payments can leave you paying 200% or more of what your original loan was. Depending on the size of the balance, you could be paying as little as a dollar or two towards your principle. This could take you 20 years or longer to pay off. That doesn’t look like a viable option to me…so on to the next one.

Bankruptcy

While many people think bankruptcy is the easy way out, it really isn’t. It leaves an impact on your credit report for at least 10 years. Also depending on your line of work (especially if you work in the financial or securities industry), it can make it hard to get a job. Let alone the fact that Bible tells us to repay what we owe and bankruptcy violates that. So only in extremely rare and dire situations would I even begin to consider this option. Out of the thousands of people I have worked with, there has only been one legitimate case that I offered this as potential to and that was an older widow who had 50%+ in debt payments and needed her income solely to survive. So on to the next option.

Debt Settlement Company

I call this “let’s see how many people can fall for the same trap” companies. Almost all of these companies are out to scam both you and the credit card companies. They promise to settle for pennies on the dollar, but first, you begin by paying them a monthly payment in order for them to have money to settle with the credit card companies. If they even do what they say, by the time you have saved enough to settle, the credit card company has been coming after you for quite a while with harassing phone calls and any legal measure they can get away with. As I recently shared with a coaching participant, 99% of these companies are not good and most of them have F ratings with the Better Business Bureau.

Debt Management Company

A Debt Management company does just what it sounds like – helps you manage your debt. They charge you a small fee to negotiate your interest rate down to a more reasonable rate and allow you to pay your creditors back more quickly. On one of their plans, the average person can pay off their debt in 3-5 years compared to the 15-30 years it takes just paying minimum payments. This is an excellent viable option. I’ve worked with both CredAbility and Money Management International and been very pleased with the service they have offered as I coach people and the coaching participants themselves. I would encourage you to either pursue this option or the next one – snowballing.

Snowball

Our final option is the do it yourself method. This is where you take an extra amount each month, let’s say $20 and put it towards your smallest balance with the highest interest rate. As soon as you have paid it off, you take that monthly payment, let’s say that was $50 a month, plus the extra $20 and put it towards the next smallest with the next highest interest rate in addition to the minimum payment you had been doing. You continue this cycle until you have paid all your debts off. The power of compounding now works in your favor! This is the other viable option that I would recommend and hopefully you will soon be heading for that debt free sign.