Behind on bills? Learn when debt settlement may be the right choice

Credit card delinquencies are at their highest level in 15 years, according to Federal Reserve Bank of New York data released in May. If you're falling behind on your bills, you're probably wondering what to do next.

While debt settlement might seem like an easy way out, it's not the right move for everyone. Depending on the type of debt you have and how far behind you are, it could help you get back on track or it could end up costing more than you expect.

Here's a quick guide to help you figure out whether debt settlement makes sense for your situation.

Your monthly bills may be getting harder to manage, but you're still making your payments on time. In that case, debt settlement is probably not your best option.

Instead, negotiate directly with your creditors or consider a debt management plan (DMP). Offered through nonprofit credit counseling agencies, a DMP typically lasts three to five years and combines your eligible unsecured debts into one monthly payment. Your credit counselor may also be able to negotiate lower interest rates with your creditors, helping you pay off your debt faster.

Enrolling in a DMP can affect your credit in the short term. For example, some credit card accounts may be closed, but making consistent, on-time payments can help improve your credit over time.

You're having a hard time keeping up with your bills, and your debt keeps growing even though you're able to make some payments. In this situation, debt settlement may be worth considering.

Debt settlement can reduce the amount you owe by negotiating with creditors, but it comes with tradeoffs. It can hurt your credit, involve fees and there's no guarantee your creditors will agree to settle. Before enrolling, weigh the potential savings against the costs and risks.

Freedom Debt Relief helps with credit card debt, medical debt, most personal loans, some private student loans, as well as collections or repossessions. It has an A+ rating from the Better Business Bureau and more than three-quarters of its reviews on Trustpilot are five-star. Plus, if the settlement amount is more than the balance you had when you enrolled, Freedom Debt Relief will refund your fees.

Accredited Debt Relief also has an A+ BBB rating, and it offers online guides offering debt help depending on your situation, such as veterans in debt, teachers in debt, healthcare workers in debt, seniors on fixed incomes, divorce and debt, plus more.

If you have a relatively small amount of debt to resolve, National Debt Relief may be a good option. The company accepts clients with as little as $7,500 in unsecured debt, a lower minimum than many competitors. National Debt Relief is available in every state except Connecticut, Oregon, Vermont and West Virginia.

If you're so far behind that you don't see a realistic way to catch up, bankruptcy may be worth considering. While it's typically a last resort, it can provide relief when other options aren't enough.

Bankruptcy is a serious legal process, and it can remain on your credit report for up to seven years for Chapter 13 bankruptcy or up to 10 years for Chapter 7 bankruptcy. But if your debt has become unmanageable, it can also give you the chance to wipe the slate clean and start rebuilding your finances.

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every debt settlement story is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of debt relief products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.

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