Debt Consolidation Blog

Due to downturn in economy, debt has become a part of life but having too much debt can affect the quality of life and make the life miserable. When everything tried out to be useless like debt consolidation and refinancing, the last two alternatives to think about are debt settlement and bankruptcy. This are two potential way to clear the existing debt and start new financial life. But I often hear from many people that is debt settlement same as bankruptcy.

When looking to start the financial life from scratch, it is important to understand the difference between bankruptcy and debt settlement that help alleviate your financial woes.

Bankruptcy is no way related to debt settlement. Bankruptcy is to be considered as a last resort and I advice do not file bankruptcy unless you have no other choice. It will negatively affect your credit score and financial life in future for years to come. Where debt settlement is considered as an alternative to bankruptcy, if you are struggling with out of control.

In general, debt settlement is a process where the service representative will negotiate with lender in an effort to reduce the amount you owe by 50 percent, reduce interest rates, and monthly payments. When you approach a debt settlement service, they ask you to default on payments for at least 3 to 6 month and deposit affordable amount into savings account. After a handsome of amount is deposited into account, debt settlement service representative will start negotiating with one lender at a time and try to reduce your debt balance that range between 20 to 70 percent. If the debt settlement process works out, then you will need a lump sum of amount directly credited to creditor. Remember, no creditor will entertain payment plans with debt settlement process.

Debt settlement is service where the debt settlement service provider will assess your financial position and try to negotiate with your lender to explain your financial hardship to get out of debt. This is an out of court process that involves agreement between creditor and debtor but the debt settlement will not give any kind of relief from debt as the bankruptcy provides instead it provides up to some level of debt relief and that depends on the negotiation skills of the settlement service representative.

On the other hand, bankruptcy is legal procedure where the debtor has to file a case in court or hire an attorney to do the proceeding on behalf of you which will have an adverse affect on credit score.

Bankruptcy will be reported to credit rating agencies and will be in public records for almost 10 years but with debt settlement, period of defaults will be listed on the credit report. This means the affect of debt settlement has less impact then bankruptcy. However, both options adversely impact credit scores, but being is an unfortunate position and have to choose one of the options then I suggest debt settlement for getting out of debt.

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