What if I told you that sometimes people who try to help you end up hurting you? That’s what often happens with debt consolidation, debt settlement and debt management companies looking to help you with your credit card debt. Let’s consider each of these in turn, and you’ll soon see why some of these options are worse than doing nothing at all.

1. Get a debt consolidation loan. With debt consolidation, you take out one large loan and then use that loan to pay off all your smaller debts. This can be a good strategy, but what usually ends up happening is that the person just starts charging on their credit cards again. This leads to having to pay multiple creditors every month, which leaves the person right back to where they started from. The point is that unless you have a plan to achieve financial responsibility, you’re likely to end up in the same mess as when you started.
2. Bankruptcy.Although you might have a bankruptcy lawyer trying to sell you on filing bankruptcy, you first need to do some homework. It’s often said that bankruptcy is one of the top five life-altering negative events that a person can experience. And although filing for bankruptcy was once an ideal way to erase your debts and reset all your financial records, recently passed bankruptcy reform laws have made it harder to erase your debts. The two major forms of consumer bankruptcy are Chapter 7 and Chapter 13, so let’s compare the two.
   • Chapter 7 – The American Bankruptcy Institute says that approximately 50,000 people who file for Chapter 7 Bankruptcy are rejected every year. Chapter 7 is the old personal bankruptcy strategy that’s getting rarer to become approved for because most companies want to at least get some of their money back.
   • Chapter 13 – With Chapter 13, creditors tend to be more open to settling since they still get paid through a strict settlement system overseen by the courts. This leaves open the option for your creditors to garnish your wages, foreclose on your property and pick through your assets. this type of bankruptcy stays on your credit history for 7 to 10 years, which could effect your ability to qualify for mortgages and other consumer credit. The good news is that a chapter 13 bankruptcy can be part of a broader plan to be more financially responsible, and many who use this form of bankruptcy are able to reestablish good credit in time as long as they stick to their game plan for financial responsibility.
3. Debt Settlement. This is where your creditors allow you to settle your debts for a fraction of what you owe (your creditors will usually offer to trim 25 to 50 percent off of your total debt amount). Although you can do this yourself, most people work with businesses that handle the debt negotiations for them. But here’s where the surprise comes in for most people: the sum total amount you’ve been given in debt relief is reported to the IRS and ultimately counts as income when it comes time to file your taxes. That’s not to say that you need to totally avoid using a debt settlement. Indeed, it might be the best strategy to combine a couple of techniques. For example, get yourself on a budget and start using the debt snowball strategy to get rid of your debts one by one. If the debt snowball strategy is currently out of reach, then maybe look into working with a debt settlement company. Whatever you do, come up with a plan and don’t deviate from it.
4. Debt Management Services. These companies will take over your debt and manage it by making all the monthly payments and distributing the money among your creditors, with whom they’ ve often worked out lower payments and lower interest rates. The problem with this strategy is that when you later try to get a consumer loan, mortgage or FHA home loan, you will be treated just like if you’d filed for Chapter 13 Bankruptcy and conventional mortgages may consider you credit tarnished.

Whatever course of action you choose to take regarding your debt, please remember to make your decision based on what is best for your long-term financial goals and not just what’s easy or expedient at the moment.