Paying Off Debt

Strategies to Pay Off Debt

Determining the best course of action in resolving your debt can seem daunting, but you have several different options. Debt consolidation loans, credit counseling, debt settlement, a cash-out refinance, bankruptcy, and some other strategies are all possibilities.

The best course of action really depends on a few factors such as the total owed, the type of debt, and other factors you will need to consider. This guide may help you determine which is the right strategy for you. 

Your strategy of paying off your debt depends on your unique situation. See below for common strategies to resolve your debts. 

Cash-Out Refinance

For homeowners, this method allows you to swap your existing mortgage with a another with a higher balance loan. The newer, higher mortgage pays off your previous mortgage and the home owner retains the cash difference between these two loans. That cash is then used toward remaining debts. This allows the homeowner to cash out on  home equity at a relatively low interest rate, possibly lower than the original loan, and apply it toward high-interest debt. 

Fees, appraisal expenses, and closing costs need to be considered before using. Making on time payments may be a struggle for you or you may not be a homeowner; in this case, this option may not work for you. 


Chapter 7 and Chapter 13 bankruptcy are both legal options that may help you if are over your head in debt. Chapter 7 bankruptcy allows you to discharge your debt so that you are no longer obligated to repay it and provides you with relief from debt collectors if you have little to no disposable income. However, Chapter 7 bankruptcy involves selling most of your possessions so that your existing debts can be repaid, so you may lose some assets such as your home or car if you select this option.

As for Chapter 13 bankruptcy, you may qualify if you have sufficient income and are precluded from filing under Chapter 7.  Chapter 13 bankruptcy may allow you to make a single, consolidated payment toward your debts through repayment plan that typically lasts three to five years. While collections activity may cease it could considerably constrain your budget. 

Also keep in mind that some student loans, child support and alimony, and tax debts cannot be discharged in bankruptcy. Loss of assets, difficulty borrowing money or obtaining a loan in the future, and a mark on your credit report for 7 to 10 years are also things you should consider before filing for bankruptcy. 

Credit Counseling

Credit counseling agencies assist consumers in money management and may offer debt management planning to help you out of debt while saving on interest.

Enrolling in a Debt Management Plan allows a credit counseling agency to work with your creditors to lower the interest rates on your debts. You would then make monthly payments through the credit counseling agency that they repay on your behalf.  

If you choose for a Debt Management Plan, you may have to pay an enrollment fee plus monthly fees to the credit counseling agency and this may be an issue if you can’t afford to pay more than your monthly minimums.

Debt Consolidation Loans

Debt consolidation loans combine multiple debts into a single, manageable, low interest payment. The consumer obtains a fixed-rate loan, pays off the other debts, repaying the loan over a set period of time. This method can be a concise way to handle the debts with one straight-forward payment. Since there are fewer payments it may improve the consumer's credit score since the chance of missing a payment decreases. 

Debt consolidation typically requires a good credit score to obtain a loan with a low enough interest rate to make this method worth it. The consumer may also continue with poor debt practices such as overspending on credit cards. 

However, if there is a large amount of debt of at least $10,000 and you would like to reorganize and simplify your payment while controlling credit card spending, then this may be a viable option for you. 

Resolve the Debt on Your Own

In some cases, you may be able to independently go about resolving your own debts. This requires utilizing tools and resources to understand how much to pay to save on interest to repay your debts with a desired time-frame. 

If you have the discipline and motivation to learn and put time and effort into this, you may be able to succeed using this strategy. You could regain control over your finances over a period of time and save on upfront costs and likely protect your credit score. 

If you are in the position where it is difficult to repay even the minimum balances or are overwhelmed by your debt situation, then you may want to pursue another debt relief option. 

Debt Settlement 

Debt settlement is an effective bankruptcy alternative and getting out from under your unsecured debt load in a relatively short time – just 24 to 48 months depending on your particular situation. While it is not the perfect debt relief solution for everyone, it may be right for you if paying off your debt while looking for a bankruptcy alternative.

If you have never heard of credit card debt settlement before, it is important that you understand all the facts so that you can choose the debt relief strategy that is most appropriate for you.  

Credit card debt settlement may be the option that best meets your particular long-term needs.  Contact one of our debt settlement consultants and discover if this form of debt relief is the right choice for you.