Bankruptcy Versus Credit Card Debt Settlement: Whats The Right Choice?

June 26, 2010

If you, like many others, use your credit card to purchase any and everything you want, then you might find yourself with tons of credit card debt and no way to dig yourself out of your financial hole. Many people that get credit cards spend way above their means and before they realize it they’ve a stack of credit card bills that could reach the ceiling. If you fall into this category, you might need to begin looking into debt settlement which can assist you in digging yourself out of that financial hole.

Many people in your situation think that they only have a few choices when it comes to solving their debt problems. The two most common options for those who are burdened with enormous amounts of debt are either declaring bankruptcy or debt consolidation. Unfortunately, if you take the easy way out by declaring bankruptcy, it will leave your credit severely stained which will show on your credit report for up to 7 years. This can result in higher interest rates, a lower credit limit and if you do qualify for a mortgage (some lenders do give loans immediately after bankruptcy) you will most likely not be able to get a loan to cover 100% of the financing you need.

So now you need to weigh your options. Do you file for bankruptcy to get rid of your debt but suffer with bad credit for 7 years or try and go for a debt consolidation solution in which you pay off your debt? In many cases you can negotiate with collection agencies and possibly get 25% - 50% of the debt forgiven, if you can show that you’ll continue to make monthly payments until the remainder is paid off.

Many of the debt settlement / debt consolidation companies were actually established by the credit card companies themselves. Why would the credit card company do that you ask? Its in their best interest to help you pay off your debt because they have the ability to either forgive some of the debt, reduce the interest rates, lower the monthly minimum payment requirements or some combination and get paid a portion of the money owed or receive nothing if you declare bankruptcy. This is why a lot of people who have been saddled with debt are now being offered debt settlement. Of course, not all debt consolidation service companies are owned by credit card companies but many are.

Some groups offer debt settlement programs through arbitration. The “selling point” when it comes to these kinds of solutions is that debt settlement will actually help end your debt problems, without having to go through declaring bankruptcy, without having to pay overcharged debt consolidation program fees as well as helping you avoid getting caught in the debt consolidation trap that a lot of people have fallen victim to.

In many cases, what the organizations do that offer debt settlement services is negotiate your debt down with the collection agencies that have been given your case. You should try contacting a number of companies to ensure you feel comfortable and that you are working with a quality company that doesn’t over-charge you for their services.

It is also possible to negotiate with the collection bureau yourself if you want to save money. It’s not that difficult. So the next time your get a call from the collection bureau rep tell them that you would like to pay off your debt but you can only do it if you can get it reduced. Tell them that you would like to get the debt you owe reduced by 50% - 60%, even 75% and ask them to see what they have the ability to do. Always start high in the beginning because as in any negotiation there is always a give and take. Believe me, they’ll go to work for you and your offer will be seriously considered because they only get paid when they collect and it’s better to get their percentage on a smaller amount than zero on the full amount.

So now you’re left with a tough decision. Will it be bankruptcy or debt settlement? Whatever you choose to do just remember that you do have options. Shop around for the best deal. The internet is full of companies offering their bankruptcy or debt settlement services, but be careful and do not let them push you around and never work with anyone you do not feel 100 percent comfortable with.

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