As the Director of Settlement Services at Debt Relief, I am often asked...
"Is Debt Settlement better than bankruptcy?"
I wish that this was a simple answer, but the correct answer is that is all depends.
In this case I am talking about unsecured debt such as:
- Credit Cards
- Unsecured Personal Loans
- Store Card Accounts
- Medical Bills
When Unsecured Debt gets OUT OF CONTROL and you CANNOT AFFORD to continue making monthly payments, what are you options?
1. In rare cases, you may be able to secure a 2nd mortgage or Equity Line of Credit to use to pay off all of your accounts.
While many feel like this is unwise, it may be to your advantage to combine or consolidate all of your high interest accounts into one loan that usually has a much smaller interest rate.
Of course, the danger is that if you default on this loan, your home could be in jeapordy!
Also, if your home is foreclosed on, the 2nd mortgage and/or equity line of credit may not be dismissed!
2. If you qualify, a DEBT MANAGEMENT PROGRAM may be a good option. In a Debt Management Program, your creditors usually agree to lower your interest rate and take a fixed payment for approximately 48 months depending on the account.
Often a common missconception, A Debt Management Program is not a factor in determining your credit score.
The problem with a Debt Management Program is that, many times, the total payment may not be less (and is some cases more) than your current total monthly payments!
3. DEBT SETTLEMENT is an option that you should consider if you cannot quailfy for or cannot afford the payment of a Debt Management Program and do not have or cannot qualify for a 2nd mortgage or equity line of credit.
In a Debt Settlement Program, your accounts will become delinquent and in most cases charged off by the original creditor and placed with a debt collector. Once your reserve account has sufficient funds, a settlement of 50% or less can be negotiated and the debt is now classified as "settled-as-agreed".
Even though your credit report will show late payments, eventually all of your accounts will show a ZERO BALANCE! At this point, your credit score will start to IMPROVE!
Many clients have enrolled in our Debt Settlement Program with $25,000, $50,000 or in some cases over $100,000 of combined unsecured credit and have completed the program, becoming totally DEBT FREE and saving 50% or more!
- If you have no access to home equity or cannot qualify for a consolidation loan...
- If you cannot afford the total monthly payment of a Debt Management Program...
- If you cannot afford a reasonable monthly amount for a Debt Settlement Program...
4. ...then BANKRUPTCY may be you only option.
Bankruptcy is a very serious decision and should only be considered after investigating ALL OF YOUR OPTIONS. However, qualifying for a Chapter 7 bankruptcy is not an option for most people after the Bankruptcy laws changed on 2005.
Most people will only qualify for a Chapter 13 bankruptcy and will pay into a plan for up to 5 years before their debts are discharged.
You may have heard that Debt Settlement Programa charge huge fees! While the debt settlement company will and should earn a fee, recent legislation has gone a long way in stopping bad debt settlement companies.
You should always check out a Debt Settlement Company (or any company) at the Better Business Bureau.
With a Chapter 13 bankruptcy, your creditors will get pennies-on-the-dollar and your bankruptcy attorney will earn a fee. This is usually calculated in the monthly payment you will be making to your bankruptcy court.
So, is Debt Settlement or Bankruptcy the best option for you?
Our Debt Solutions Specialist can help you determine which option is the best choice for your situation. If you would like a FREE CONSULTATION WITH NO OBLIGATION to explore your options based on your particular circumstances, give us a call at 1-877-492-4109 or click on the link below!