Bankruptcy

• Some people elect to file for bankruptcy when faced with debt problems. A bankruptcy relieves the borrower from most debt obligations. Though bankruptcy solves the immediate problem of the debt, it creates a myriad of other issues for the consumer, including damaged credit for 10 years and even potential problems gaining employment.
  
  

Debt Consolidation Loan

• A debt consolidation loan is a borrowing arrangement that allows you to combine all your debts into one more affordable loan account. The new loan either provides you with a lower monthly payment or reduces the time it will take you to pay off the debt. Homeowners sometimes use home equity lines of credit to consolidate high-interest debts. But it's important to note that this is short-term relief. While the arrangement may help you pay off the debt you have now, it doesn't necessarily teach you the importance of avoiding debt in the future.
  
  

Debt Management Plan

• Another solution for a debt problem is to establish a relationship with a debt counseling service to set up a debt management plan. With a debt management plan, a credit counselor negotiates a better deal with creditors then the plan provider pays the debt down on your behalf. The plan may help you pay off your debt in theory, but if you miss a payment, the plan provider could remove you from the program. A DMP could also damage your credit report and score.
  
  

Snowballing the Debt

• Another way out of excessive debt is to create a financial plan and budget. The snowball debt reduction method requires you to add all extra money you have left at the end of each month toward your debt account with the lowest balance until that debt balance is zero. You then move to the next lowest balance until all debts are repaid. To be most effective, you should cut up all credit cards and not use credit for making purchases anymore. This option requires a lot of discipline, but it can teach you the value of financial planning so that you'll avoid getting back into the same situation.