Carrying credit card debt from month-to-month can keep you from pursuing other financial goals, such as saving for emergencies, traveling or purchasing a home. And if you think making minimum payments on your credit cards each month means you’re successfully managing your debt, you’ll want to think again. Making only minimum payments and carrying balances means you’ll be paying off that debt for years to come — if you ever pay it off at all. That’s why many consumers seek credit card debt relief programs. There are several types of programs available. The one you choose depends on your current financial situation and what you hope to accomplish in the future. Let’s review some of them.

Creditor Hardship Programs

Most creditors offer hardship programs designed to help keep customers’ accounts from going into default. The programs vary by creditor, but they generally lower interest rates and waive fees for a set amount of time to allow customers to continue making payments while experiencing financial hardship.

To qualify for these plans, you’ll need to contact each creditor directly and apply. Most creditors require the customers to experience a major life event, such as job loss, major illness or natural disaster to qualify. The creditor may ask you to provide proof of the event.

You’ll want to contact your creditors as soon as you realize you’re experiencing a financial challenge. Creditors are more likely to work with you when you’re honest and communicative. You’ll have fewer options available if you wait until you miss payments to contact them.

The important word to keep in mind here is “temporary.” Although these plans can help you get through a difficult time, they are not designed as a long-term solution to significant debt.

Debt Settlement

The promise of paying back less than the total amount of credit card debt you owe is an appealing proposition to many borrowers. That’s why debt settlement is one of the fastest growing debt relief programs. But it can be a lengthy, expensive process that doesn’t always live up to its promises.

To start, you’ll sign a contract with a debt settlement company, then begin making payments into a dedicated savings account. While you’re building up a savings balance, the debt settlement company is likely to tell you to stop paying your creditors. This is a strategy to get them to accept less than the total amount you owe. Once you have a significant balance in your savings account, the debt settlement company negotiates lump-sum payments with your creditors and pays off your accounts.

Although you will end up paying less than you owe, the long-term effects on your credit history and score may not be worth it. It will take some time to overcome the late payment history that builds up from withholding payments.

Debt Consolidation

In its simplest terms, debt consolidation is taking multiple monthly payments and consolidating them into a single month payment. This can be done using a dedicated debt consolidation loan or by transferring credit card balances to a lower interest rate credit card. Ideally, the consolidation results in easier budgeting and money management as well as saving money in interest.

Debt consolidation can be an effective strategy for paying off debt, but it doesn’t work for everyone. For example, if your credit score is already suffering due to missed payments or a high credit utilization rate, you may not be approved for a loan. Or if you are, the interest rate may be the same or even higher than what you’re paying now. And the same goes for applying for a 0% interest rate credit card. Gaining approval will be an uphill battle without good or excellent credit.

Debt consolidation can work well for consumers whose finances are in generally good shape and are looking for the convenience of making a single monthly payment. It’s probably not the answer for those whose credit is already damaged or whose credit card accounts are in default.

Debt Management

This debt relief service is offered by nonprofit credit counseling agencies. Debt management plans share some similarities with both debt settlement and debt consolidation, but they work differently.

Clients on a debt management plan make one monthly payment to the credit counseling agency. The agency then disburses payment to all the creditors enrolled on the plan. What really sets debt management apart from other debt relief options are the lower interest rates creditors give clients who are on these plans. This allows more of each monthly payment to go toward the principal, and drastically reduces the time it takes to pay off accounts in full. Benefits of a debt management plan include:

• Interest savings
• One monthly payment
• Faster pay-off time
• A path to bring past-due accounts current
• An end to collection calls

Borrowers interested in a debt management plan should get started by completing a credit counseling session. This will help them determine if debt management is the right solution for their unique financial situation. Some credit counseling agencies offer the option of working one-on-one with a certified credit counselor or completing self-guided, online credit counseling. Regardless of the outcome of the counseling session, all clients receive a personalized budget, action plan and recommended debt relief solutions.

Bankruptcy

Consumer bankruptcy can be a fresh start for people whose debt has become truly unmanageable. The two most common types of bankruptcy are Chapter 7 and Chapter 13. Chapter 7 provides the proverbial “clean slate” by eliminating all or most unsecured debts. Chapter 13 is different. Rather than wiping out debts entirely, the court restructures a consumer’s debts into a more manageable repayment plan that generally takes 3-5 years to pay off.

In both types of bankruptcy, the court may order you to sell certain personal possessions to raise money to pay back creditors. These can include (but aren’t limited to):

• Vacation or rental properties
• Non-essential vehicles
• Original art
• Collectibles; like stamp or coin collections
• Designer clothing
• Fine jewelry

Bankruptcy is a serious legal process with long-lasting consequences. A bankruptcy can stay on your credit report for up to 10 years. Initially it will be difficult — if not impossible — to secure new credit at reasonable interest rates. Fortunately, as you start to rebuild your credit, the bankruptcy will have less of an impact.

Keep in mind that declaring bankruptcy will not fix underlying issues with overspending or money management. If you don’t change your habits, you could find yourself in similar financial distress down the road,  and may face filing bankruptcy more than once.