Bankruptcy vs. Debt Settlement: Which is Best For You?

Last Updated on July 28, 2021 by MoneyVisual

More than 90 percent of Americans are in debt. Because it has become a way of life, many people don’t realize that they can get out of debt and get back on their feet again. Debt settlement is also referred to as debt reduction or debt management. Settlements are made with the credit card issuer’s unsecured lenders.

There are numerous things to consider when deciding between debt settlement vs bankruptcy. First, would you qualify for a Chapter 7 bankruptcy or would you have to do a Chapter 13 bankruptcy? Often Chapter 7 bankruptcy is the most cost-efficient option when deciding on debt relief although there are some credit report implications. Second, if you do not qualify for Chapter 7, you can consider debt settlement vs Chapter 13 bankruptcy.

The question to ask yourself is what the monthly plan payment would be in Chapter 13 vs the plan payment in debt settlement. Also, the length of time is important to consider. Would a debt settlement program be 24 months and a Chapter 13 would be 60 months? These questions can help you determine which option is more viable for you.

Debt reduction is a viable option for many people because it allows them to get back on their feet financially while avoiding bankruptcy. In fact, settlement can often help save a person from the threat of bankruptcy.

Debt settlement is not always successful. It is an effective strategy when creditors are willing to settle. However, a person who wants to use this strategy should be aware of how debt settlement works and how the process works.

Negotiation

The first step in negotiating is to get in touch with your credit card issuer. Most debt relief services work by providing a free consultation in which the client explains their financial situation and asks questions about the possibility of a debt settlement.

A trained debt settlement professional will then contact your credit card company and try to arrange a settlement deal between the lender and the client. If the creditor agrees to settle, the client must then pay the lender a lump sum – usually more than half of the total amount owed – and sign a contract acknowledging the transaction.

At the initial negotiation, the client should be prepared to present a realistic plan of action. To do this, the client should include all the income sources, such as paychecks, loans, and other money coming in, and any outstanding bills. All of the documentation should be up-to-date and detailed. Be sure to provide any tax returns. This document serves as proof that the client is a responsible credit card holder.

Debt settlement professionals are well trained in how to negotiate effectively and get creditors to agree to a reduced amount. They can often negotiate for the elimination of as much as 50% of the total debt. Most clients get about 40% of what they owe eliminated through settlement. While this may seem like a huge payoff, it is far less than the original amount the creditor originally owed.

Do Your Research

Before deciding on a debt settlement program, it is important to weigh the debt settlement pros and cons. One important cardholder factor is that settling a debt does not guarantee that a client will not incur any more debt – it simply makes future payments easier to make. Credit card companies often require clients to pay certain fees – and those costs can quickly add up if you fail to make payments on time.

Although many debt settlement programs charge a fee, it is not uncommon for them to also provide services such as bill consolidation, tax planning, and budgeting. This may be a good option for a person who is already overwhelmed by debt and has no other way to manage his or her finances. Some companies provide credit counseling as well.

Consider Your Options

Unfortunately, many credit cards can be revoked if you are not responsible and keep defaulting. This can affect your ability to take out new cards. In addition, debt settlements may result in increased interest rates.

The best way to overcome credit card debt is to learn to manage your finances better and establish good spending habits. By paying off your debt and reducing your interest rate, you can be well on your way to rebuilding your credit.

It is important to remember that there are many alternatives to settle your credit card debt. Many people have found debt settlement programs to be a helpful tool for their debt relief needs. If you are in debt and do not see any other way out, then this program is the answer to your problems.

There are many debt settlement programs available to help people with their credit card debt. It is important that you compare the different programs and select the one that works best for you.

Before hiring a company to assist you with your debt, be sure to research a few options, including debt settlement online. When you compare many options, you will have a better chance of finding the right company for you.