Debt settlement is an alternative to bankruptcy where the debtor and creditor agree on a reduced balance that will be considered payment of the balance in full. Sometimes it is also called debt arbitration, debt negotiation, or credit settlement. There’s a difference between “debt consolidation,” which utilizes a different strategy to reduce debt. Not all debts can be settled with debt settlement, and there are many important factors to consider in determining if debt settlement is the right choice for resolving unpaid debt.
Debt settlement typically only helps in the reduction of unsecured debts with no collateral. Creditors are usually unwilling to settle secured debts with collateral, like homes or automobiles, since these items can be recovered and accepted as the “settlement.”
Types of unsecured debt that are good candidates for debt settlement include:
Debt settlement can help in reducing the total amount of money that is owed by a debtor by 40% to 60%. The final agreed upon balance is usually paid in a lump-sum or in a structured period with monthly payments. Individuals can initiate the debt settlement process themselves, but debt settlement professionals typically have better luck negotiating with creditors. However, there are often negative impacts to credit rating when utilizing debt settlement.
Debt consolidation can help lower interest rates, reduce or eliminate fees, or interest charges. In debt consolidation, debtors usually enlist the help of a debt consolidation company to secure a loan, and negotiate with lenders. Multiple bills can be consolidated into one to be paid off by the new loan. Debtors usually pay back the loan with reduced monthly payments, interest rates, and/or fees. While debt consolidation pays more money to creditors in the long run, it does not usually have a negative impact on credit rating.
Deciding between debt settlement and bankruptcy requires a broad and careful analysis of one’s current financial situation. Debtors must add up all of their necessary monthly expenses and subtract them from their total monthly income.
Choose Debt Settlement: If there is any positive balance leftover, after subtracting monthly expenses from income, debt settlement can be a better choice than filing for bankruptcy. Debt settlement is only a viable option when regular monthly payments can be made to reduce the debtor’s total unpaid balance.
Choose Bankruptcy: If after subtracting necessary monthly expenses from income, there is a zero or negative balance, then debt settlement is ruled out as a possibility. Filing for bankruptcy often becomes the smartest choice in these situations.
Both debt settlement and bankruptcy almost always have a negative impact on credit rating.
Debt settlement attorneys can offer a great deal of help in determining which debt settlement, debt consolidation, or bankruptcy option best suits your individual needs. These attorneys will stop the collection calls from creditors, and negotiate for the highest reductions in interest rates, monthly payments or unpaid balance. In addition to that, these attorneys can petition for the least negative impact on credit rating, and usually expedite the entire debt reduction process.
Consumer Attorney Services utilizes debt settlement attorneys with over 30 years combined experience. Our bankruptcy and foreclosure defense teams are staffed with experienced case managers, investigators, and paralegals. Our commitment to providing an outstanding quality of service distinguishes us from other bankruptcy and foreclosure defense law firms.
Contact our legal teams experienced in debt settlement today for a free consultation to see if debt settlement is right for you.
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