Too Much Debt? Start Here

You have many options if you find yourself burdened with too much debt, including consolidating your debt with a personal loan.
a young couple looks at bills they have to pay
Written by:
Gina Freeman
Edited by:
Kristin Marino verified

Debt problems range from uncomfortable to unsafe. There’s “too much debt” as in, “I need to eat at home more,” and too much debt as in, “I won’t have a home to eat in.”

Debt solutions range from easy fixes to last resorts. The sooner you start, the easier and less costly the fix will be. You may be able to simply consolidate too much debt with a personal loan. You may have to bite the bullet and file bankruptcy. Or something in between.

Check out this list of debt solutions ranging from easiest to hardest. Try the first ones before resorting to the last.

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Consolidating debt with a personal loan

High credit card interest rates can take a huge toll. And most rates are also variable, which can make budgeting harder. In addition, low minimum payments make it too easy to borrow too much. If your credit score is good but you owe too much money, you may be able to take control of your finances with a personal loan.

Advantages: Personal loans put a definite end to your debt (usually one to five years) as long as you leave your credit cards alone after zeroing them out. And you only have to track one payment. Conversely, making minimum payments on credit cards can extend your repayment to decades. if your credit is good, you may be able to drop your rate to a 6% to 10% range.

Unlike other solutions, consolidating debt is unlikely to harm your credit report. In fact, moving your credit card debt to a personal loan can improve your credit score. If you can afford a payment that would eliminate your debt in five years, consolidating debt with a personal loan is a good solution.

Disadvantages: Because you’re not extending your repayment for decades, the payment for your personal loan might not be lower than that of your credit cards. But you’ll be debt-free faster.

Related: How to Get a Personal Loan With a Low Credit Score

Consolidating debt with home equity

Another solution, if you have a lot of debt, a lot of home equity, and need to reduce your monthly payments is a home equity loan. Interest rates are lower because the loan is backed by your home. That reduces the lender’s risk, so you get a lower interest rate.

Advantages: Home equity debt usually carries the lowest interest rates. And with long repayment periods, the monthly payments are as low as they go. You replace multiple payments with just one.

Disadvantages: Home equity loans cost money to set up. And if you fail to repay as agreed (suppose you lose a job or fall ill), you can lose your home to foreclosure. Also, even with a low interest rate, the amount of interest you pay over 15 or 30 years can easily exceed what you’d pay with a personal loan over five years.

Debt management plans (DMPs)

Debt management plans, or DMPs, are also debt consolidation options. You pay into the plan monthly, and it in turn pays your creditors. You should ideally receive budgeting advice and credit counseling as well as a plan.

Watch out for high pressure tactics and expensive fees. You can avoid these by choosing a reputable non-profit counseling service. In general, DMP is a decent solution only if you can afford the payments and get out of debt within five years.

Advantages: Credit counselors contact your creditors and can sometimes get them to reduce your payments, interest rates and / or late charges. They reduce the number of payments you have to track because you only make a single payment. They may be able to help you remove late payments from your credit history if you generally have a clean repayment record.

Disadvantages: These plans usually have fees. Many participants drop out if they can’t afford the payments or because payment drags on for too long. Interest rates may remain high. And some creditors report debt management plan payments as “less than agreed,” which can drop your credit score.

Debt cancellation, write off or settlement

Debt cancellation is a nuclear option. It’s preferable to payday loans or title loans, and it can work when you are insolvent and completely unable to repay your creditors. But make no mistake — there will be consequences. If you have a good credit score, there are better choices. Because once a creditor writes off your balance, you will no longer have a good credit score.

Firms that specialize in settlement services usually have you turn over a lump sum to them (if you have it in savings). Or they have you stop paying your creditors and put that money into an account with them. When there is enough to make a reasonable offer, the company contact yours creditors.  It may offer them 25 to 50 cents on the dollar to wipe out your account so you owe zero.

Advantages: You get a fresh start and your debts go away. you don;t have a public filing like a bankruptcy on your record, and you keep property that a bankruptcy court might otherwise take and sell.

Disadvantages: Your creditors don’t have to accept your offer and may in fact take you to court. Companies that help discharge debt charge fees, so make sure you know the cost before agreeing to this. Creditors may try to collect during the time in which you’re not making your payments. And much of the time, the IRS considers “forgiven” debt taxable income. prepare to pay at tax time unless you qualify for an exemption.

Related: Is Cancelled Debt Taxable?


Unlike other options, your creditors don’t have an option about participating if you file Chapter 7 or Chapter 13 bankruptcy. Chapter 13 requires you to make a monthly payment into a plan. It distributes the payment among your creditors. After (usually) five years, any remaining balances are zeroed out. The court decides how much you can afford to pay, not you or your creditors.

Chapter 13 is a public filing. It closely resembles a debt management plan.

Chapter 7 bankruptcy gives you a fresh start, wiping out your debts on your discharge date. But this comes at a high price. Anything you own that is not exempt is taken and sold to pay at least some of what you owe your creditors.

Chapter 7 is a public filing. It closely resembles debt cancellation or settlement.

Advantages: You don’t need your creditors’ permission to seek bankruptcy protection. Unpaid amounts are not generally taxable income.

Disadvantages: It’s public. Filing can make you ineligible for certain jobs, loans or other programs. Your credit rating may take a big hit if it’s not already low. bankruptcy stays on your credit report for up to ten years. And because you’ll probably need a lawyer, bankruptcy is not cheap.

Early debt intervention: pick the easiest and cheapest option

You can probably see that the sooner you address a debt problem, the easier and cheaper it is to fix. And if you fail to fix your debt problem with a personal loan or debt management, the more drastic options are still available.

Compare personal loans for debt consolidation