These are not all necessarily for everyone. In fact, you will probably only find that one or two of these methods will apply to your situation the best.

1. Sell an Asset

This may sound like a non-option, but selling an unneeded asset can do wonders to your finances. Consider that extra vehicle that you keep around. Sure it is convenient to have a truck for those 2 times a year you need to haul something. Once you factor in the license fees and insurance costs, you still might be talking about a few hundred dollars a year just to keep it on the road. It might be much cheaper to rent or borrow a truck when you need it.

A boat also a common off-limits asset. I see people frequently that refuse to give up their boat even though they can barely afford to put gas in it. Remember that boats are notoriously expensive to maintain. Also, keep in mind that the 2 best days in a boat owner”s life are the day you bought it and the day you sold it! Extra cash can be used to pay off your higher interest debt in a lump sum payment.

2. Increase your Payments

If your credit card minimum payment is $30, chances are $25 of it is interest. You don’t have to be a rocket scientist to know that it takes a long time to pay down a $1,000 balance at $5 a month!

Just an extra $5 a month can allow you to repay the debt in half the time. Keep in mind we are still talking in terms of years to repay it at this rate. Sending an extra $30 can allow you to repay the debt in a little over 2 years. This option assumes that you have extra money each month, but may sometimes lack the discipline to send more than minimum payments.

3. Work More

A second job can burn you out. So can overtime. Temporarily increasing your income in order to find more money for repaying debt can give you additional resources for eliminating your debt quickly. The extra stress from working more may be offset by the sense of relief you get by paying off a debt.

The best additional work is one that provides you with reasonable pay and satisfies some of your social needs. Bartending and waiting tables are often overlooked, but they provide some of the higher earning part-time jobs available. Best of all, these pay the most during the hours when you are probably away from your regular job anyway. Thursday through Saturday nights tend to carry higher tips, so use your time wisely. In addition, you can have fun on the job if you find the right work environment. Carefully choosing a schedule can help you limit any impact on your current job and any family or friends.

4. Complete Credit Counseling

Credit counseling is more than just helping you budget and manage your money. The common stigma that people place on credit counseling is that it is just for people that cannot manage their money. The truth is that over half of credit counseling clients were able to manage their money, but they fell victim to life changing events that made debt payment difficult.

Credit counselors also have a pretty effective tool for eliminating debt. It is called a debt management plan and it utilizes a special program available through major credit card companies where you can get a break on interest, fees and payments.

Most people that enroll in a debt management plan are able to repay their debt by making lower payments than before. This may seem counterintuitive, since repaying debt faster typically means that you have to increase your payments. However, these programs are so effective because participating creditors lower your interest rates by so much that your finance charges are often less than half what they were before. Where before you saw $5 of your $30 minimum payment go toward principal, a debt management plan could allow for your finance charges to drop to only $10 a month. Even if they reduce your payment from $30 to $22 on the account, you have just increased your principal payment to $12 from $5. Under the program, your payment also stays the same, so that even though your balance is dropping you keep sending in the same amount. Every single month, your finance charges end up less than the previous month and your principal payments increase, much like they do on an installment loan. That way, you can normally eliminate your debt in 3 to 5 years while making lower credit card payments.

5. File for Bankruptcy

At some point, you might need to consider throwing in the towel. Bankruptcy is an ugly option and it has all sorts of public humiliation often associated with it. It even has rather high costs, since most attorneys charge at least $2,000 to help you file for bankruptcy.

Still, bankruptcy may need to be one of your options. The biggest sign that you might need protection from your creditors is if you have several creditors in which you owe very large balances that are threatening legal action. Since it is illegal to threaten legal action without a reasonable expectation to follow through with it, you should consider such threats to be credible.

Bankruptcy can give you bad credit for up to 10 years. However, you might need to consider it as an alternative to judgments and garnishments that may be possible depending on your state of residency.

Non-Options for Eliminating Debt

Debt settlement is almost always a non-option. Companies that offer debt settlement services do nothing to shield you from legal action. They also pay themselves several thousands of dollars before they ever begin working on your behalf. If you were looking for help eliminating debt, then you just created another creditor for yourself by hiring a debt settlement company. Furthermore, every time you do settle on a debt, understand that the so called savings is considered a gift and is generally taxable as income. If your income is $40,000 a year and you save $5,000 by settling a debt, you will generally be taxed as if you earned an additional $5,000. Depending on your state and federal tax rates, this could result in up to $2,000 in additional taxes!

Credit repair is also a non-option for eliminating debt. Such companies promise to make these things just go away, but the only thing they do is file frivolous disputes to the 3 main credit bureaus every single month. These frivolous disputes are discounted as such by the credit bureaus, and they are ignored. Meanwhile, you keep paying them for something you could easily dispute on your own. If you through this money toward your debts rather than throwing it away, you could make your debts disappear and improve your credit.

The biggest mistake people make is to borrow money to eliminate debt. That’s like asking for a torch to put out a bonfire. You cannot eliminate debt by taking on more debt. This is why approximately 70% of homeowners that used home equity loans or a cash out refinance loan to repay credit card debt ended up in worse shape in as little as 2 years.

To eliminate debt, consider taking on one or two of the top 5 methods revealed above. The sooner you take action, the sooner you see results!

I Have Lots of Unsecured Debt

If you owe substantial sums of money to several creditors, then you should understand that debt settlement is probably the least favorable option. In most cases, you simply cannot satisfy all of your creditors before they pursue a judgment. This is true whether you attempt to settle your own debts or hire an expensive debt settlement company. Either way, there is no protection from a judgment.

That being said, you might need to find out how bankruptcy works and whether you qualify. If your budget is already well in the negative and you cannot even afford to make any of your debt payments, then you might need to speak with a qualified bankruptcy attorney. This could be especially true if the total of your unsecured loans and credit card balances exceeds 150% of your annual household income.

If you can afford to pay some, but cannot pay the full minimum payments, then you might actually have another alternative. Debt management could be a way to make everyone happy while getting your credit rating back on track at the same time.

I Have Some Unsecured Debt

Having smaller amounts of unsecured debt makes bankruptcy a less appealing option. It is designed for insolvency and desperation, not for a less burdomsome debt problem.

If your debts are all charged off, then debt settlement is actually a reasonable option as long as you avoid debt settlement companies. Settling your own debt could allow you to close the account and avoid legal problems down the road. That being said, understand that you could incur an additional tax liability for any forgiven debt. If any account is settled for a savings of $600 or more, then you should expect to receive Form 1099-C which is automatically reported to the Internal Revenue Service.

Debtors that still owe original creditors may find that credit counseling might be a better option. There may be benefits available that could provide a lower monthly payment and reduced interest.

What is a Bankruptcy Score?

A bankruptcy risk score is not the same as your FICO score or credit score. Whereas your credit scores measure your risk of nonpayment, your bankruptcy risk score measures your likelihood to file for bankruptcy protection. It is based on how your recent credit history and transactions compare with those of other consumers when they filed for bankruptcy.

Many cardholders were blindsided by interest rate hikes. Chase for example gave many cardholders the option of either a rate hike or a 150% increase in their minimum payment. Other card issuers have raised interest rates by 3 or 4 points for many of their cardholders.

The reason that card issuers are raising rates, fees and even minimum payments is that they are trying to offset losses associated with higher default rates and losses from their other lines of business, such as mortgage units and brokerages. Some cardholders are not amused however.

Consumers may rightfully argue that their credit scores are still reasonably good, and therefore they should be protected from unprovoked rate increases. What they do not often know is that they likely have a bankruptcy risk score that may indicate that they are a higher risk client.

Credit card issuers reserve the right for adjustments to the cardholder agreement terms at “any time for any reason.” While these rights may be restricted beginning in July 2010, they do have the right to make changes without a cardholder’s consent.

If you believe that you have a good credit score and have experienced a rate increase or some other unwanted change, then there is a high likelihood that your bankruptcy risk score is higher than other cardholders with a similar credit score. While these scores have been blocked from consumer access for decades, they may be offered by Experian in the future.

Before getting a bankruptcy, seek the advice of a reputable debt counselor and/or a bankruptcy attorney to ensure that there are no other options available to you that are less damaging to your credit. If there are possible alternatives, they will be able to share with you your options so that when you do choose bankruptcy, you know that it is the best option for you. In most cases, you want to file only if you absolutely can’t pay your bills and are about to lose property. If you are facing repossession, it is possible that the repossession could be almost as bad for your credit as the bankruptcy, and make it harder to rebuild your credit.

If your original credit score prior to bankruptcy is in the 700s, you could see a 200 point drop immediately upon filing bankruptcy. Often, people who are filing bankruptcy have already seen their credit score drop because of late payments and increasing balances, so the bankruptcy itself won’t have as large of a negative impact.

After bankruptcy, you will want to check your credit report for several things. First, make sure that the only accounts that are part of your bankruptcy are listed as part of your bankruptcy. Secondly, you will want to make sure that the accounts that are a part of your bankruptcy are listed as discharged through bankruptcy, and listed has having $0 balance. If you find any errors, report it to the credit bureaus to get that fixed right away.

Bankruptcy itself will not affect your spouse’s credit if they do not file, but if they are a co-signer on some of those accounts, not paying the balances of the accounts will affect them. Their credit report will not report that you have filed bankruptcy, so those joint accounts may be reported as unpaid, but this can be corrected if your spouse did not sign for it. If they did sign, then they too are legally responsible for the debt. Co-signers are only protected under Chapter 13 bankruptcy, not Chapter 7, and only to the extent that the repayment plan is set-up to repay the debt. The co-signer will still be responsible for any additional debt balance, and may be required by the creditor to pay it.

Your bankruptcy will stay on your credit report for many years, but you will want to make sure the bankruptcy removed as soon as it can be. Chapter 7 bankruptcy can remain on your credit report for ten years, though the individual accounts under the bankruptcy should drop off after seven years. Chapter 13 bankruptcy and the accounts associated with it should only remain on your credit report for seven years. At the end of these periods, you will want to pull all 3 credit reports in order to make sure that your bankruptcies have fallen off your report.

The sooner you begin retaining or re-establishing credit in good standing after bankruptcy, the sooner your score will improve. A good place to start is with obtaining a secured credit card, one that is backed with funds that you have deposited with your credit union or bank. This is still reported to the credit bureaus, helping your damaged credit. Another important step to take is to make all your payments on time. This is essential to achieving and keeping good credit. Eventually, you should be able to be approved for a traditional credit card that you can use responsibly to continue to build credit. This work is necessary to rebuild your credit. Your bankruptcy will affect your credit less and less with time, so keep that in mind as well.

Bankruptcy doesn’t have to be a knockout blow to your credit. Once you’ve done your homework, you will be able to create a plan to lessen the impact of bankruptcy on your credit score both in the short-term and in the long-term.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 increased the restrictions for Chapter 7 bankruptcies by introducing a “means test” that was supposed to disqualify high income filers. The thought being that those with high incomes could actually afford their debt and were abusing the legal system by filing.

Also, the Act increased the paperwork and overall complexity associated with filing for bankruptcy. The logic was to make filing much more complicated and, as a result, less attractive to consumers. In fact, the new restrictions made filing so much more complex that lawyers began charging almost double for bankruptcy cases.

The Act only increases the restrictions of Chapter 7 bankruptcy filings, hoping to push more consumers to file under Chapter 13. The difference between Chapter 7 and Chapter 13 bankruptcy filings are:

• Chapter 7 requires that your assets, except for those exempted by the state, be liquidated and given to creditors, and remaining debts are canceled; said to give consumers a “fresh start”
• Chapter 13 requires the debtor to repay at least some of the debts within five years

While the Act had some immediate success, bankruptcy filings are increasing again. And Chapter 7 filings still far outnumber Chapter 13 filings. The Administrative Office of the U.S. Courts reports that the number of personal bankruptcies filed in the federal court from June ’07 to June ’08 is 38% higher than the number filed a year earlier (for Chapter 7 filings). Chapter 13 filings are up 17% from the year earlier.

What’s worse: consumer advocates, economists, and experts predict these numbers to be even higher in 2009. A bankruptcy expert and University of Illinois law professor, Bob Lawless, predicts the total number of filings will reach 1.2 million in 2009.

Creditcards.com lists some reasons for this rise in bankruptcies:

• The economy: as unemployment rises, people losing their jobs will be unable to make their credit card payments and may look to bankruptcy as a solution
• Declining home values: in the past, consumers could rely on home equity loans as a way to pay down debt instead of bankruptcy, but home values are absolutely terrible right now
• The credit crunch: gone are the days of easy credit and living beyond our means. The financial crisis of Wall Street is trickling down. The credit is not coming easily anymore and consumers are realizing that they’ve got expenses they can’t possibly afford without it.
• Credit cards as family lifeline: the higher costs of food, gas, health care, etc. have forced many low income families to turn to credit cards as a way to make ends meet. These families cannot pay them off each month, and the story usually ends in bankruptcy.

So, the law was designed to decrease the number of bankruptcies, but for reasons like those outlined above, the numbers are still increasing. Thus, people who legitimately need to file for bankruptcy because their debts have become insurmountable now face more paperwork and complexity.

People are finding that they can’t actually afford to file for bankruptcy anymore because legal fees are significantly higher, court fees are higher, and filers are required to take debt education courses that cost money, as well. The silver lining: those who can’t afford to file for bankruptcy are probably not the people collectors will attempt to collect from, anyway.

Nonetheless, those consumers who don’t know this and can’t afford bankruptcy are starting to file on their own, without legal representation. The danger of this is that the paperwork and procedures are so much more complicated now that the average consumer will have an extremely difficult time getting through it accurately.

Consumer advocacy groups are clamoring for reform of the bankruptcy laws, but it took seven years to get the 2005 legislation passed. Congress is reluctant to open up that can of worms again. So, consumers need to be aware that filing for bankruptcy is more costly than ever and should almost always be a measure of last resort.