Debt Relief Options, Debt Settlement, Credit Counseling, and Bankruptcy

Debt settlement involves negotiating with the credit card companies to reduce the total amount of debt that you owe. It is a fairly aggressive approach to credit card debt relief, with some of the advantages being that most consumers are able to lower the amount they owe by about 50 percent and, instead of taking up to 20 years or more to pay off the balance, through a debt settlement program they can become debt free in 12 to 36 months. A debt settlement client will immediately notice a substantial reduction in their monthly payments compared to what their minimum monthly (usually interest only) payment was with the credit card companies. Debt settlement is an excellent debt relief solution for consumers who are in serious credit card debt (usually greater than $10K) and are unable or only able to make the minimum monthly payment and/or have already fallen behind.

Credit counseling involves working with the credit card companies to lower the interest being charged. With consumer credit counseling a consumer can be debt free in 4 to 5 years and able to save some money on their high interest credit cards. Realize, however, that these companies are usually set up by the credit card companies in order to collect as much of the debt as possible. Don't be fooled by their non-profit status... all the profit they make beyond their operating expenses goes back to the credit card company. Also, when working with one of these companies, any debt that they help you with will show as TPA (third party assistance) on your credit report. In some instances this can be just as bad for your credit score and rating as a bankruptcy!

Debt Consolidation involves taking out one loan to pay off multiple debts. This is often done to secure a lower interest rate, secure a fixed interest rate or for the convenience of simply making one payment instead of many, although usually for a much longer period of time. Consolidation can severely affect the ability of the debtor to discharge debts in bankruptcy, so the decision to consolidate must be weighed very carefully. Because of the theoretical advantage that debt consolidation offers a consumer that has high interest debt balances, companies can take advantage of that benefit of refinancing to charge very high fees in the debt consolidation loan. In addition, some unscrupulous companies will knowingly wait until a client has backed themselves into a corner and must refinance in order to consolidate and pay off bills that they are behind on the payments.

Chapter 7 bankruptcy is considered a last resort by most because of the usually severe credit implications. For consumers who owe a lot of money on their credit cards and do not have an adequate income stream, this may seem like the only debt relief alternative. In a Chapter 7 bankruptcy, a debtor will generally be forced to liquidate all non-exempt assets of value and pay the creditor with the money from the sale. Most consumers who file chapter 7 bankruptcy will tell you that the long term damage just isn’t worth it.

Do nothing, is exactly as it sounds. Unfortunately even if you are doing nothing, your creditors will definitely not do the same. This will most likely result in lawsuits, repossession, and a lot of stress. Ignoring your debts will never make them disappear, but it will most certainly cause you more grief and stress in the short and long run.