Debt Elimination or Debt Management. Which is the Right Choice for You

Overwhelming credit card debt is a very common problem for many American consumers. Too many people just continue to pay their monthly minimum payments without any knowledge that their debt burden may never go away.

When a person comes to the realization that they are caught in an endless cycle of debt, they may then admit that help is needed. What people may not know is what kind of help is available, and how to find it.

Understanding all of the options to relieve themselves of debt can be very confusing. Choosing the best plan of action can also add the stress caused by the debt in the first place.

One option is to enroll in a Debt Management program. A Debt Management company will attempt to work with your creditors to lower the interest rates and waive any fees, such as over-the-limit fees and late fees. Please notice the words "attempt to". There is no guarantee that the creditor will agree to lower the interest rate or waive any fees. Actually, the interest rate on a card may increase when a credit card company is informed of a financial hardship.

With a Debt Management program, your budget will be analyzed to determine how much money per month you can part with to pay down these debts, and initiate a plan to make regular payments to your creditor for a specific dollar amount. Once your creditor sees a pattern of regular payments reducing the principal balance, they may agree to lower the interest rates even further.

For a Debt Management program to be effective, the debt should be paid off within five years. You must be able to continue to make the regularly scheduled payments. Keep in mind that interest will continue to accrue, so your payments are not all being applied to the principal balance. Part of the payments will continue to be applied to interest, as well as any monthly fee charged by the management company.

The Debt Management company should provide you with an amortization schedule, showing the amount of principal and interest you will be paying each month, month after month. With this schedule, you will be able to see exactly the amount of time it will take to be debt free under the payment plan. This schedule can change however because of adjusting interest rates, missed payments, or extra payments. You should look for a different management company if they cannot provide you this schedule.

If you cannot work out a plan to have the debt paid off within five years, a Debt Management program may not be right for you. One option to consider is a Debt Elimination program.

A Debt Elimination program will allow a person to legally walk away from 100% of their non-secured credit card debt, without bankruptcy, consolidation, or refinancing. A person can take advantage of this program just once. It's kind of a financial "do-over".

With a Debt Elimination program, a person can select which cards to eliminate, and which ones to keep. The eliminated cards can no longer be used. The goal however, is to learn how to live without credit cards.

Debt Elimination does not happen overnight. A good program will have you debt-free in 6 - 12 months. Also an education on the credit card system should be included, so that it is understood just how and why an elimination program can work.

Student loans, medical bills, and any secured loans do not apply to a Debt Elimination program. Only major credit cards, signature loans, and unsecured lines-of-credit are applicable. For these types of debts, a true elimination program may be the financial re-start people are looking for.