Everyone has their primary reason for wanting to pay off their debts with the most important purpose underlying the plan – to save money. With APRs at extortion rates between credit cards and personal loans its near impossible to get out debt. Many Americans are simply maintaining their debts by making minimum monthly payments that barely break the bank fees, placing next to nothing towards balances each billing cycle. Currently, the average interest rate on credit cards is around 14.4 percent. The average default or late payment jumps the rates to the high 20s and its game over for most therein.

Credit debt creates consumer debt. Recent surveys show that consumers who use credit cards instead of cash are likely to spend 25-30% more when they go shopping. It would be safe to assume that with the current state of the economy and these figures people do not treat credit like real money, rather an expendable luxury.

Most consumers are accustomed to using their credit cards for their daily purchases, all the way down to gasoline and groceries. So it would be save to say that with the comfort of credit use combined with the criminal creditor fees the odds are stacked against you when it comes to ending the cycle and getting out of debt.

So how do you reduce your balances?

Well, nothing happens over night. Like life, the theory - if its too good to be true probably is - lies true here too. You have options…you may not like your options, but theyre there for those determined to become debt free. Two of the most popular ways of getting out of debt are credit counseling & debt settlement programs, also known as debt negotiation or debt management. While they have the same goals in mind the services within are as different as night and day.

Credit counseling, debt consolidation programs are usually conducted via non-profit certified counseling organizations who disburse payments to the credit card companies each billing cycle as received from the consumer. A credit counseling agency negotiates the terms of your current credit card plan for reduced interest rates and usually a lower monthly payment. Consumers who are behind receive even more relief as late, past due, and over limit fees stop once the accounts are enrolled. With reduced interest rates and the stopping of additional fees consumers are able to pay back their debt at an affordable rate within a reasonable time frame, usually 4-5 years. Timely monthly payments and the continued reduction in balances assist in improving credit scores throughout the duration of the program.

Debt settlement services take a different route to getting you out of debt. Depending on your current credit situation, some settlement plans can get you out of debt in as little as 3 years. Debt settlement plans best benefit those with bad credit, charged off accounts or those facing the possibility of bankruptcy. Settlement companies work with collection agencies to lower the amount owed on your principal balance, not just interest and fees. However, such negotiations cannot begin until an account has reached a charged off status which usually occurs after 6-7 months of non-payment. An account in a charged off status remains as a bad debt on your credit report for seven years, regardless if the balance is paid or not. Something else to consider when exploring settlement alternatives is your tax backs on settled accounts. The amount saved in a settlement offer is considered taxable income by the IRS. So if a settlement company settles a $5k debt for $2k the difference of $3k is taxable by the IRS and considered earned income for that year.

Reducing credit card balances and paying off your debt takes time. Deciding which option is best for you truly depends on where you’re currently at and where you want to go. How you want your credit affected, your goals for the next 5 years, and your current budget and financial ability to satisfy said debts. Most non-profits provide free budget counseling and consolidation quotes to help consumers make an educated decision as to how they can/should absolve their debts. For more information or a free consultation call us at 800-905-1516 or visit our website to Live chat with a certified credit counselor. No time today? Complete our online application and a certified counselor will call you at a time convenient for you to go over your financial goals and credit debt. Freedom Debt Management is a certified non-profit financial counseling organization recognized by the Better Business Bureau as an A+ rated business for customer satisfaction and service.