- Pay it off, in full, as soon as possible. This can be done although many times people think it is such an overwhelming thing to do that they want to give up before they even give it a try. If you have debt, paying it off should be your first option. You made the debt, you should pay it off. Not only will this up your credit score, but the actual work of paying your debt off (which is usually quite a slog) will change your attitude about incurring debt in the future. If you feel like this would be impossible, check out Dave Ramsey who will give you hope that it is, in fact, quite possible, and probably at a quicker rate than you ever thought possible.
- File bankruptcy. This should be your absolute last option. There are some cases, like when a person is overwhelmed with medical debt due to a horrible accident which has left them unable to ever work again, where this may be their only option. But if, as in most cases, you spent like a maniac and are now faced with a massive pile of credit card debt, just pawning off your debt with a bankruptcy filing is both irresponsible AND it doesn't teach you the valuable lessons that will keep you from incurring future debt.
- Debt consolidation. I rather hate this option for a couple of reasons. First of all, there are a lot of debt consolidation companies that are just plain rip-offs. So not only are you in debt, you will soon find out that the debt consolidation company that was supposed to help you out, actually took advantage of your desperation, and took what little money you had left. Bummer. The second and third and fourth reasons why I hate this option is that one, if you do find a reputable company, they will set you up on a repayment plan that will take forever; two, you will be mingling small, short term debts with high interest large debts which doesn't make financial sense; and three, by turning over your responsibility for paying off the debts that you incurred, you don't get the full learning experience like you would get if you paid off your debts, in full, all by yourself.
- Challenging your debt. Another popular debt "rip off" encourages people with debt to "challenge the enforceability of their debts." This may make your debt go away but if it is indeed your debt, it is highly unethical and karma will get you eventually (IMHO). Obviously if you find debts on your credit report that definitely aren't yours, you should take every action to have them removed but if you incurred debt, using devious means to try to make the debt go away is not something I would recommend.
- Making a settlement. In some cases you may have such huge amounts of debt that it could literally take forever to pay it off yourself. You may have foreclosures, repossessions, big IRS debt, etc. and feel that you have no choice but to file for bankruptcy, however there is another option you may want to consider first and this is making a settlement offer. Generally this works, not when you are paying your bills up to date each month, but rather when you are way behind in your payments or haven't made payments towards the debt for quite a while. Simply call up the collection agency or whichever company holds your debt and ask to make a settlement. In some cases you can offer pennies on the dollar, and if accepted--be SURE to get it in writing before you send your check--you send the check for the full payment that you had negotiated and you will have paid the debt in full which will be reflected on your credit report.
Some things not to do:
- Never give a creditor access to your bank account. Pay them via check or money order but never give them electronic access to your account or they may, and often will, clean it out for you.
- Use debt to pay debt. Some people take out pay day loans or use a credit card in order to make payments on their debt. You will never get out of debt this way and your debt will multiply exponentially.
- Hide from your creditors. They will catch up with you eventually, even if they have to go to court and garnish your wages. Better to talk to them and work out a deal to pay the debt.
- Put your debt in other people's names. Aside from the usual identity theft issues (like prison), or using a friend/roommate/brother's info to incur debt (because like YOU can't get credit--here's your sign) which leads to arguments, lawsuits, and the occasional appearance on Judge Judy, or worse, putting your debt in your kids name which is the lowest of the low, you never want to use someone else's name to incur debt. This NEVER works out well.
The bottom line is that if you have debt, you should endeavour to get rid of it as soon, and as responsibly, as possible. If you are overwhelmed, listening to or watching Dave Ramsey on a regular basis will show you that being debt-free no matter where you are starting at is, in fact, quite possible.