This content was originally created by Bankruptcy Canada.
Consumers hear it all the time: avoid debt wherever you can, and pay back borrowed funds as soon as possible. However, the truth is that debt is actually very easy to fall into and incredibly hard to claw your way out of. It can even be difficult to understand what your options are for debt repayment.

If you’re struggling to get out of debt, you have a few choices to make in regard to tackling what you owe. By using the right tools and approaches, you can get yourself out of debt once and for all, and back on the track to financial security. First, though, you will need to ask yourself just how much trouble you’re in with your debt. 

Approach 1: Just Make Regular Payments

The average American is currently walking around with about $5,700 in credit card debt. This doesn’t include balances such as a mortgage, student loans, or a financed vehicle, either -- just retail consumer debt.

While few consumers can afford to pay down their owed balances all at once, it can actually be pretty manageable to wipe out this level of debt. All it takes is a little financial discipline and regular payments on the account. But what constitutes a “regular payment?”

Regular payments are, as the name would imply, incremental contributions made toward debt in order to slowly -- but surely! -- bring the balance down to zero. Creditors will require a minimum payment each month, though you can certainly choose to pay more than that in order to pay it off even sooner.

Paying more than the minimum payment each month is a smart idea, too. Not only will you get out of debt faster, but you could also avoid hundreds (or even thousands) of dollars in added finance charges, simply due to compound interest.

If you want to avoid paying high-interest charges over time and get out of debt sooner rather than later, consider either the debt snowball or debt avalanche method. Both of these repayment approaches will save you quite a bit of money in the end, and you’ll still be tackling your own debt without intervention.

Approach 2: Consolidate Your Debt 

If you are struggling to keep various balances straight each month, have multiple interest rates impacting the money you owe, and feel overwhelmed by your debt, consolidation might be the answer. It can, if done properly, not only simplify the debt repayment process but also save you money along the way. Debt consolidation is the act of rolling all of your owed balances into one account. This account -- most often in the form of a personal (or debt consolidation) loan, but can also be a balance transfer credit card -- will replace all of the other accounts, interest rates, and due dates, streamlining the entire process for you. Once your debt consolidation is complete, you will simply be responsible for one monthly payment, and you’ll only need to worry about one interest rate being charged.

While debt consolidation can be the answer to some of your problems, it can also create others if you’re not careful. For instance, using a personal loan to consolidate your current balances would clear out the accounts with your other creditors. If you have trouble managing your budget or controlling your spending, a wallet full of zero-balance credit cards could be a recipe for disaster… and even more debt!

In some cases, debt consolidation loans can have interest rates that are just as high as (if not higher) some of those charged on the balances you already carry. Even if not, consolidating your debt into a new installment loan can actually lengthen the amount of time it will take you to become debt-free. While the convenience may seem worth the cost, it’s important to evaluate your goals.

If you are considering debt consolidation, you may want to speak with a professional first. Debt counseling services are available at low cost, or often free, and can help you break down exactly how much consolidation will save you in the end. These financial professionals will also take your budget and financial goals into account, calculating exactly which approach you can afford to take with your specific situation.

Approach 3: Consider Settling Your Debt

Sometimes, debt can spiral out of control. Either due to unhealthy financial habits or extenuating circumstances, such as an illness or death, you could find yourself in a situation where you don’t see a feasible way out from underneath your debt. In this case, you might start looking into a debt settlement option, or consumer proposal.

Consumer proposals offer borrowers a way to declare bankruptcy on their debt, waving the white flag in exchange for an exit strategy. This is, of course, a last resort and can have long-lasting impacts. For some consumers, though, it’s the only option for getting out of debt. After deciding to declare bankruptcy, you will begin working with a licensed insolvency trustee. This officer works with you (not for you) to both protect your interests and facilitate the process throughout the court system. Following the consumer proposal process, you will usually be responsible for repaying a fraction of your owed debt to your lenders, with the remaining balance written off under the terms of the bankruptcy.

Bankruptcy should not be taken lightly by any means. Your creditworthiness will be impacted for years to come, impacting your ability to get future credit products, loans, and even jobs. You may also lose certain assets in the process, under the terms of the bankruptcy. However, if you are drowning in debt and see absolutely no other way out, this may be the only option for your family. 

Knowing which debt repayment route to take can be difficult. No one enjoys being in debt, and repaying that balance for years to come can make you feel like you’re running in a place financially. However, it’s important to choose the method that not only saves you the most money but also suits your unique situation. Consulting with a debt counselor is a very smart place to start. These professionals will take your unique situation into consideration, helping you make an informed decision about your debt repayment options.

Lastly, if you want to know just how much money you could save between making regular payments on your debt, consolidating balances, or even initiating a consumer proposal, it’s easy to do. Simply use a bankruptcy debt repayment calculator -- such as this one -- to see just how much savings are involved. By using all of the financial tools available to consumers today, you can make the most informed decision possible regarding your own debt repayment.

Article from Bankruptcy Canada.