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Bankruptcy Versus Debt Settlement

The pros and cons of bankruptcy versus debt settlement.

Bankruptcy versus debt settlement: which is better? That's the question asked every day by consumers who are deeply in debt. Each approach to debt relief has some advantages – and considerable disadvantages as well.

When you file bankruptcy, most of your debt will be eliminated. Creditors will not be allowed to hound you for money, and you can begin rebuilding your financial life fairly quickly.

Debt settlement is a little more complicated. What is a debt settlement program? With debt settlement programs, you'll stop paying your creditors and you'll put money in a savings account instead. After several months, when your accounts are quite overdue, your debt settlement company will offer to help you settle debt by making lump sum payments to your creditors that are significantly less than the total amount you owe.

Is debt settlement a good idea? It depends. If your creditors accept your offer, you may be able to get out of debt by paying 25% to 80% of what you owe. But creditors are not required to settle debt – they may choose to sue you or to send a collections agency after you instead. Any debt that is forgiven will be subject to taxes, which is not the case with bankruptcy. Also, you'll have to pay a hefty fee to your US debt settlement service.

When considering bankruptcy versus debt settlement, one thing is certain: each approach will severely damage your credit rating. That's why, when contemplating how to settle debt most effectively, it's important to get financial advice on bankruptcy versus debt settlement from credit counselors like those at American Consumer Credit Counseling (ACCC).

Seeking professional advice on bankruptcy versus debt settlement.

ACCC is a nonprofit organization that works with individuals and families to find the fastest path out of debt and to learn to live debt-free in the future. We offer free credit counseling sessions with certified professionals where you can discuss bankruptcy versus debt settlement and other debt relief strategies. After getting a clear sense of your financial picture, our counselors will lay out all your options and help you decide whether bankruptcy versus debt settlement is the best approach, or whether another strategy may be more effective.

When bankruptcy versus debt settlement offers no good answers.

For many consumers thinking about bankruptcy versus debt settlement, neither approach feels like a satisfactory solution to financial problems. For these people, a debt management plan may be more effective. Under a debt management plan, you continue to pay your creditors each month, so your credit rating is not severely damaged. You'll get support from the ACCC team to set a budget and to pay your bills on time, and we can help to seek reductions in interest rates, finance charges, and late fees that can help to reduce the total amount you owe.

Contact us today for a free credit counseling session to take the first step in your journey out of debt, and to learn more about debt management versus bankruptcy versus debt settlement.

American Consumer Credit Counseling (ACCC) is a nonprofit organization offering free credit counseling sessions for consumers throughout the country. For anyone considering debt settlement program or working with credit card settlement companies, our counselors can explain the details of the credit card settlement process, discuss the debt settlement credit impact, outline the worst and best debt settlement scenarios and discuss other pros and cons of debt settlement. We can also help consumers explore the benefits of a debt management plan vs debt settlement, and answer questions like “How bad does debt settlement hurt credit?” and “Is debt settlement a good idea?” as well as “Does debt settlement work?”

American Consumer Credit Counseling - Consolidate Debts - Better Business Bureau American Consumer Credit Counseling - Consolidate Debts - Mass Housing Approved National Industry Standards for Homeownership Education and Counseling American Consumer Credit Counseling - Consolidate Debts  - Council on Accreditation American Consumer Credit Counseling - Consolidate Debts  - NFCC Member