What is a common method to manage debt effectively?

Debt settlement negotiations are recognized as a common method for managing debt effectively because they involve negotiating with creditors to reduce the total amount owed. This process can result in a more manageable payment structure, which is particularly beneficial for individuals struggling with high levels of debt. By reaching an agreement that lowers the balance, borrowers can avoid bankruptcy and potentially improve their financial situation significantly.

While this method offers a practical route to achieving debt relief, it’s important to recognize that it may negatively impact a borrower’s credit score in the short term. Consequently, individuals should consider their financial circumstances and long-term plans before pursuing debt settlement.

The other methods listed are generally less effective in promoting long-term financial health. Making only minimum payments tends to prolong the debt repayment period and increases the amount of interest paid over time. Consistently applying for new credit can lead to a higher debt-to-income ratio and negatively affect credit scores. Finally, investing in high-risk assets does not address debt directly and can exacerbate financial instability if the investments do not yield the expected returns.