When the Americans are overburdened with a huge amount of debt, they wonder about the ways in which they can get out of it and live a stress-free life. While there are options like debt settlement, debt consolidation and bankruptcy that they can resort to, they often get confused about the options that best suit their financial ability and needs.
If you’re considering filing bankruptcy as the best way to start afresh, you should be aware of the detrimental impact on your credit score. Debt settlement is certainly considered as a better option when it comes to bankruptcy. Here are some points that you should consider when you opt for debt settlement or bankruptcy.
Advantages of debt settlement that you should consider
When you owe debts to multiple creditors and the amount exceeds $10,000, you may get help from a debt settlement firm. However, before getting help, here are some advantages that you should consider.
- Negotiations on your behalf: The debt consultant of the debt settlement company will negotiate with your creditors on your behalf and tell them the reason that is barring you from making the monthly payments on time. Once they come to know the actual reason, they can consider altering the repayment schedule so that it becomes favorable for you.
- A portion of your balance will be waived off: When you tell your creditors that you can’t pay back the entire amount with the meager amount at your disposal, they will waive off a portion of the total outstanding balance so that you have to pay off an amount that is much less than what you actually owed. By reducing the amount, you can pay off easily.
- Single monthly payment: The remaining amount that you have to pay back needs to be either repaid in single monthly payments or in a lump sum. Only after assessing your present financial worth and the amount of money that you can repay after meeting all your debt obligations, will they decide the monthly installments. This can be a favorable repayment structure for you.
- Trusted account: Once you decide to repay the amount in monthly installments, the debt consultant will open a trusted account for you so that you can deposit the monthly payments there. Both you and the debt consultant will have access to this account and you can even withdraw funds whenever needed.
Chapter 13 bankruptcy stays on your report for the next 7 years – What should you do?
Instead of opting for debt settlement, if you choose to file bankruptcy, Chapter 13, this will stay on your credit report for the next 7 years and this may jeopardize your chances of filing bankruptcy. Once you’re dragged to the court and you discuss with people about your debts, you’ll lose the confidence to get back the financial strength.
Therefore, when you’re wondering about the better option, whether debt settlement or bankruptcy, you should measure your decisions before taking the plunge. Though debt settlement also has an impact on your credit score, the impact is much less than that of bankruptcy.