For renters, your debt is unsecured because no collateral (a home or a car) was used to get the loan. When a debt consolidation company steps in and negotiates the amount owed to creditors, the negotiation will be marked as a settlement. Debt consolidation companies can charge anywhere from 3- 5% of the total debt owed. However, the negotiation will negatively effect your credit rating. The debt will be gone, but the negative credit rating indicates that the debt was not paid back as originally promised.

For home owners, debt consolidation does not require you to take out a second mortgage loan. Through debt consolidation, you can combine all your loans and other debts into one single payment, making it easier to keep track and hopefully end up costing you less.

Debt consolidation companies extend their debt handling services not only to individuals, but also to business enterprises. Many businesses that have been on the brink of bankruptcy as a result of bad credit have sometimes been pulled back by debt consolidation companies. As a business owner, you can still hold on to your business even in the face of a bad debt, thanks to debt consolidation companies.

If you’re tired of reminders being sent in the mail that you owe debt, or have been hitting ‘ignore’ on the phone when you know your credit card company is calling, you should consider accepting the inevitable: you are in debt and you owe money. But all hope is not lost; here are some simple ways to pay off your debt sooner than you thought possible.

Step #1 More is Better

Whoever said “less is more” was wrong when it comes to paying credit card minimums. Paying the minimum (typically 2% or 3% of the total debt owed) simply delays the pain of paying what you owe. Create a long-term financial budget that devotes more than what’s required to pay your bills. If you’re unsure where to fuel the extra finances, start scrimping and saving. Say ‘goodbye’ to those skinny iced lattes or brown bag your lunch. You’d be amazed to know that your $8 work lunches amount to $3,000 a year on just that one midday meal!

Step #2 “C” is for Consolidate

If you have outstanding debts on multiple cards, consider combining them into one lump debt. Examine each credit card’s interest rates, and if possible, transfer higher interest rate debts to lower interest cards. Keep an eye out for promotions offered by credit card companies. Often, these companies will offer significantly lower interest rates that could save you money. The money you save by consolidating can be put toward your monthly payment.

Step #3 Tap into Your Savings

Sure, you’ve been saving up to take a fabulous vacation in the Cayman Islands, or you’re looking to retire at the ripe age of 38. Using your savings toward your debt might be a painful reality to face, but it’s a worthwhile option. The higher the interest rate on your debt, the better this decision is.

Step #4 Talk it Out

Creditors do not know who their individual borrowers are. Let yourself be known! Contact the companies and tell them your situation. They might assume you’re just withholding the money. If you’re having trouble making payments, some companies will re-negotiate terms of the debt owed, which may result in lower monthly payments and interest rates. You’ve got nothing to loose!

Step #5 File for Bankruptcy

Consider filing for bankruptcy as a last resort for individuals seriously in debt. Before filing, consider all the repercussions that will result from this drastic action. Credit companies will retain your bankruptcy information for an entire decade, so for the next 10 years, you’ll have trouble getting credit. Also, as ludicrous as it sounds, filing for personal bankruptcy costs money! Attorney and court fees quickly amass, and in this situation, must be paid prior to become bankrupt.

If you’re like thousands of Americans who are struggling to pay bills under the vice-like grip of the credit crunch, don’t lose hope, you’re not alone. There are alternatives to getting out of debt- and quickly. Many have chosen to settle their debt; this occurs when a creditor negotiates and “settles” for a specific amount that is lower, usually significantly lower, than the actual amount owed. If this sounds like a viable option for you, consider these tips before settling your debt.

Seeing Green

Creditors can often negotiate up to 60% of your debts owed, saving you thousands of hard-earned dollars. However, in order to have the most bargaining power, debt settlement is recommended for those middle-of-the-road debtors. What does that mean for you? If you’re in significant amounts of debt, you may want to consider other debt consolidation means, such as filing for personal bankruptcy. Or, if you’ve just accumulated a small bit of debt, call a lending company directly to discuss your options.

Stick to Facts

When talking with a tough debt collection agent, you may be nervous, or downright scared. Before you call, write down everything that is necessary for the collector to know; leave the tale of woe behind. This way, you’ll stay focused on what matters: the facts. Prioritize your bills, starting with necessities for your family such as food, clothing, and insurance costs, and then include extras like credit cards. Next, calculate what you can afford to pay on a monthly basis. When you are discussing what you can afford, try to offer less. After you’ve written everything down, make the call.

Slow & Steady

Don’t let the smooth talking get to you; stay focused on your goal: settling your debt for a smaller, affordable repayment plan. Words like “rush”, “immediate” and “one-time only” should raise a flag in your mind; do not take any action until you have a written agreement of the terms in your hands. By following this rule, you’ll weed out fraudulent debt settlement companies and have time to discuss the terms of agreement with your family prior to signing.