Right now, we are at the point where our monthly expenses plus debt payments are more than the money we are bringing in every month from our regular jobs. Since we’ve started tracking this a few months ago, we’ve always been able to bring in enough additional income to make up the difference, but this still means that we are generally making only minimum payments on our accounts, and it’ll be quite awhile before we’re able to start paying off higher amounts (we are using the Dave Ramsey ‘Debt Snowball’ method, where you keep your monthly payments the same as you continue to pay off accounts, so after one account is paid off the next one will be paid much quicker.) Because of this, I’ve started investigating various methods that can be used to decrease monthly payments. Read what I’ve found, after the break!

We have never had a late or missed payment, so once the high unsecured balance is off our credit reports, we should have a great credit score. We’d like to keep it this way. Also, I’m an old fashioned believer that I should pay back any money that I borrow.

So, here are the options I’ve come up with:

1. Regular Payments: This is the option where we keep making our regularly scheduled minimum payments, and use a plan similar to Dave Ramsey’s “Debt Snowball” to increase our momentum as accounts are paid in full. We could also try to negotiate with our creditors to receive a lower interest rate and/or monthly payment on our accounts.

   The positives:
   * As long as we can make payments on time, there would be no harm to our credit history.
   * Accounts can remain open as they are paid off, so we can show a better used credit to available credit ratio
   * We pay off the entire balance owed

   The negatives:
   * Our minimum payments are not likely to decrease quickly, so it may be hard to make minimums for awhile.
   * We need to ensure that payments are made on time across all of our accounts.
   * The creditors may not be willing to cut interest rates, so this may be the longest payoff method.

2. DMP (Debt Management Plan): A Debt Management Plan is an option where we would hire a company to negotiate with our creditors to try to lower interest rates and minimum payments. They would put together a plan where we pay them a certain amount of money per month, and they will distribute the payments to our creditors. The plan is structured so our debts would be paid off in a definitive period of time.

   The positives:
   * It is very likely that our required monthly payment would be drastically decreased, as they will negotiate the interest rate and minimum payment down.
   * The DMP providers have more power to negotiate with the creditors than I do, as they can show them that all creditors are being treated fairly, and that they will be paid in full after a specific period of time. They also have pre-existing relationships with most creditors that allow them to give us a good estimate of what the payments would be before ever approaching the creditors.
   * Our debt would be paid in full.

   The negatives:
   * During the repayment period, our creditors may note that we are paying on a Debt Management Plan. This does not reduce the credit score itself, but if we need new credit before the balances are paid in full [ie, buying a new vehicle, or a home improvement loan], the banks can see that we are on a DMP. This can be looked at as either a positive or a negative. Note that this note is taken off when the account is paid in full.
   * All the credit accounts are closed. This is bad from a credit perspective, but good from the perspective that the temptation to use the cards will be removed.
   * It may be more difficult to re-establish credit with the companies that were paid off with the DMP after the program’s completion.

3. Debt Settlement Plan: A debt settlement plan is very different than a debt management plan. On a debt settlement plan, you go to an attorney, who will look at your debts and work out a plan to settle them for less than you owe. Then, you stop making payments to your creditors, and start sending monthly payments in to the settlement administrator. Once you have built up enough money to pay off your creditors, the attorney will start negotiations with your creditors for the settlement.

   The positives:
   * It is likely that the debt will be paid off for much less than actually owed.
   * It is likely that the debt will be paid off much quicker than with other options.

   The negatives:
   * This is murder for the credit score. You actually stop paying your creditors while the settlement amount is built up, so they have no idea what is going on. They may go the route of filing a lawsuit against you, etc.
   * There is no guarantee the creditors will accept the settlement. If they do not accept it, you will owe a pile of fees on top of the remaining principle.
   * You are settling the debt for less than you actually owe. For me, that is not a good thing.

4. Bankruptcy: This one really isn’t an option for me, so I’m not going into the details. In my opinion, this should be an absolute last resort.

We have decided to get some estimates to see what our payments and payoff schedule would look like under a Debt Management Plan. If the DMP would be able to help us significantly, it’s likely that we will go with that option. If not, we’ve decided we will continue making regular payments, and also try to negotiate with our creditors. I’ll keep you posted on our decisions and how things are going.

I’d appreciate any questions or comments, and would especially love to hear from anyone who has been in a similar situation and has managed to get out of it!

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