What to Do When You're Drowning in Debt

Debt Consolidation

Debt consolidation is the process of taking out a loan to cover the rest of your debts. This option allows you to make one monthly payment instead of several different payments which theoretically should help you manage your finances more effectively.

Hire a debt settlement company to help settle your debts. If you have missed several credit card payments and are nearing a default on your record, a debt settlement company can negotiate with credit card companies on your behalf. Debt settlement companies can reduce your debt by 25 to 50 percent according to Investopedia. The debt settlement company will usually take a fee for this, which commonly comes out of the total debt settlement that you pay.

Bankruptcy may be a last resort option. Bankruptcy is when you legally declare to the courts that you are unable to pay your debts and your assets are then sold to pay them off. Bankruptcy stays on your credit record for 10 years; however, how your credit rating is affected will depend on the steps that you take to rebuild your credit after declaring yourself bankrupt.

Debt consolidation should be carefully considered to ensure that your financial situation is improved rather than worsened. Debt settlement can leave a black mark on your credit record for three to five years. A financial adviser or debt counselor may be able to help you to make the right decision to suit your individual financial circumstances.