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Heat 2 Tbsp. butter over medium heat and add the diced onions and peppers. Sauté for 4 minutes, then add the garlic and cook for 1 more minute.
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Add all remaining ingredients EXCEPT for the cheddar cheese, cream cheese, and garnish ingredients. I also recommend starting with 2 Tbsp. of Taco Seasoning and add more to taste toward the end if preferred. (I end up using all of it.)
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Let the soup gradually come to a gentle bubble, partially covered. If the chicken boils rapidly, it becomes tough. Cooking it slowly keeps it nice and juicy.
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Remove the chicken after 20-25 minutes, once cooked through. (Timing depends on the thickness of the chicken.) Use 2 forks to shred, then return to the soup.
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Reduce heat to low and gradually sprinkle in the shredded cheese and softened cream cheese. Stir until smooth and creamy.
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Taste and add any additional seasonings as needed. Garnish and serve!