Budgeting Managing Your Debt 6 Debt Repayment Options By LaToya Irby LaToya Irby Facebook Twitter LaToya Irby is a credit expert who has been covering credit and debt management for The Balance for more than a dozen years. She's been quoted in USA Today, The Chicago Tribune, and the Associated Press, and her work has been cited in several books. learn about our editorial policies Updated on March 4, 2021 Reviewed by Charles Potters Photo: Sean Gladwell / Moment / Getty Images If you want to pay off your debt, you have to make some tough decisions. The first of them is which debt repayment option will you choose. There are pros and cons to each option, and the one that’s best for you depends on your debt, your income, your monthly expenses, the importance of your credit rating, and how much of the debt you want to pay off. Here are six debt repayment options to consider. 01 of 06 Pay on Your Own Sean Gladwell / Moment / Getty Images Paying on your own involves assessing your debt, putting together a plan to pay off your debt, and making the plan work. You may have to call your creditors and lenders to work out a payment schedule or to ask for a lower interest rate. If you go this route, you’re responsible for sending monthly payments to all your creditors. How and when you pay off your debt depends on you. Your debt repayment plan will include both your secured and unsecured debt. 02 of 06 Consumer Credit Counseling A credit counseling agency will typically work within your budget to come up with an affordable monthly payment for all your unsecured debt. The credit counseling agency will put you on a debt management plan (DMP) that usually includes a lower minimum payment for each of your creditors and a lower interest rate. Credit counseling with a DMP usually takes about three to five years, depending on how much debt you have. Note that you aren’t allowed to use your credit cards while you’re on a DMP. Although your credit report will be updated to show that you’re in credit counseling, it won’t hurt your credit score. 03 of 06 Debt Consolidation Debt consolidation involves combining all your debts into a single monthly payment. Some types of debt consolidation programs involve a new debt consolidation loan that’s used to pay off your unsecured debt. This will require you to have a good enough credit score to get a new loan. Other programs operate more like consumer credit counseling by combining your monthly payment but keeping all your existing loans intact. 04 of 06 Debt Settlement If you work with a debt settlement company, you pay a monthly fee to the debt settlement firm, which negotiates a lump sum payment that’s less than the full amount you owe. When a settlement amount has been reached, the debt settlement firm uses the money you’ve been sending to pay the settlement. Debt settlement requires that you be behind on your payments to qualify. There’s also no guarantee your creditors and debt collectors will accept the settlement offer. You may or may not receive a refund if the settlement isn’t successful. Keep in mind, also, that the average settlement percentage is 78%, according to the American Fair Credit Council. When you consider that you might have to pay taxes on the forgiven debt, this might not equate to much savings. 05 of 06 Chapter 7 Bankruptcy Chapter 7 bankruptcy is a way to receive relief for all or some of your unsecured debts. You’ll have to pass a means test and go through credit counseling to show that you don’t make enough money to pay off your debt on your own. Depending on your state’s law, you may have to give up your assets to pay off some of your debt. This includes your home or car if you have equity. Most of your unsecured debt can be wiped out or discharged in bankruptcy. However, child support, tax debts, and student loans can’t be voided. 06 of 06 Chapter 13 Bankruptcy Chapter 13 bankruptcy is a type of bankruptcy that allows you to repay your debts within three to five years. Any debt that’s left after your Chapter 13 bankruptcy is complete will be discharged. You might file Chapter 13 bankruptcy when you make too much money to file Chapter 7 or when you have assets that you want to keep. You must also go through credit counseling to file Chapter 13 bankruptcy. In Chapter 13, you have to pay child support and alimony, certain tax debts, any wages owed to employees, your regular house and car payments, and any back payments you have on your house and car. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Experian. "A Debt Management Plan: Is It Right for You?" National Foundation for Credit Counseling. "Debt Settlement." United States Courts. "Chapter 7—Bankruptcy Basics." United States Courts. "Chapter 13—Bankruptcy Basics."