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Your Options

One should always consider the very different aspects of debt settlement when choosing the best route to take. Often individuals will base their opinion on which option is the best just by what they’ve heard or what they’ve had experience with.

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Which Debt Settlement Option is best for you?

None of these are really a “One size fits all” option to debt settlement because each person looking to resolve their debts comes from their own unique financial situation. For example; some may initially only consider Bankruptcy, but could keep themselves from filing by settling their unsecured debts. Another individual may believe they should get a debt consolidation loan however the banks will not offer them one due to their “credit worthiness”, or simply cannot afford the higher interest rate loan payments. All of the debt settlement options come with their own pros and cons and doing a little research goes a long way in helping to make the right decision.

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Debt Settlement

Debt Settlement is one of the more popular options when you want to do the right thing, you don’t want a public record of Bankruptcy and you want the opportunity to pay LESS than you owe. It is an aggressive approach to debt relief and could be the best legitimate option for some consumers.

During this process, your creditors receive a smaller yet equitable share of their money over time due to a demonstrated financial hardship you have experienced. A debt settlement plan generally lasts anywhere from 1-4 years, allowing you to pay your creditors, and ultimately relieving you of your debt. Although there are many pros to settling your debts, you should understand all aspects of this program to make sure you know what to expect.

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Bankruptcy

If you are experiencing financial hardship, bankruptcy could enter your mind. This is a process that can be broken down into 2 main forms of relief; a Chapter 7 and Chapter 13.

In a Chapter 13 BK, you could still end up having to pay for your unsecured debts. To determine if you qualify for either of these, you will need to consult a bankruptcy attorney. Please keep in mind that in 2005 the banks lobbied Congress to make it much more difficult to file Bankruptcy and walk away from your debts. In fact, if you have an income, it may be impossible wipe the slate clean with bankruptcy. Bankruptcy should be your final option. This is why we always recommend clients seek bankruptcy alternatives.

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Credit Counseling

Credit counseling services are vastly advertised. The program allows you to pay one monthly payment for all of your included accounts. That monthly payment will get spilt up between the creditors, potentially at a lower payment and/or interest rate. You may end up paying off the debts being “managed”, but you will still pay the full balance owed, you will usually pay interest, and you will have an adverse affect on credit.

Often this type of company will try to convince you that the way they mark your credit is beneficial. However, in some cases you will be viewed very similarly to having filed a chapter 13 bankruptcy.

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Debt Consolidation Loans

To realistically consider this option, you must have a qualified credit score. For the most part, lenders will want to see a fairly high credit score just to consider a consumer’s “credit worthiness”. While a debt consolidation loan seems like the easy way out, it comes with one main flaw. YOU ARE JUST TRADING ONE DEBT FOR ANOTHER. Ever heard the expression, “robbing Peter to pay Paul”? Sometimes the easy way out isn’t always the best choice. You will still pay back the full amount with an interest rate.

Debt consolidation loans do allow you to pay off your consolidated accounts. Since you are receiving a loan to pay off your creditors, these account balances will be reduced to 0, and your lines of credit will be available to you again. This aspect of your consolidation loan can be a “Trojan Horse”. In the past, many consumers have then continued to charge on those accounts therefore doubling their debt load and putting them into further financial hardship. If your goal is to become debt free paying the least amount of money, in the shortest period of time possible, this may not be the way to go.

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