Debt settlement vs bankruptcy: which will get me out of debt faster?
When you are plagued with overwhelming debt, you’re likely contemplating the pros and cons of debt settlement vs bankruptcy. Each option offers some advantages, but many disadvantages as well. Here’s a short introduction on the benefits and drawbacks of debt settlement vs bankruptcy, and some information on helpful alternatives.
Debt settlement vs bankruptcy: how do they work?
What is bankruptcy?
In bankruptcy, you’ll enter a legally binding process that will erase most of your debt, structure any repayments you have to make, and potentially strip you of many of your assets.
What is debt settlement?
In a debt settlement program, you’ll stop paying your bills to creditors and when the amount of your back payments is quite sizable, you’ll offer to settle your debt for some portion of the total amount you owe.
Debt settlement vs bankruptcy: pros and cons.
When considering debt settlement vs bankruptcy, one of the positives of bankruptcy is that you’ll have protection from creditors who can no longer harass you for payments. You’ll also be able to resolve your financial troubles fairly quickly, and you’ll pay no taxes on the amount of debt that was erased. However, your credit rating will be severely damaged, and you may not be able to get credit for loans, apartments, or mortgages for as many as 10 years.
With a debt settlement program, you typically have the potential to settle your debt for 25% to 80% of what you owe. However, creditors are not obligated to accept your offer – they may take you to court instead or send a collections agency after you. Either way, with all the penalties for late payments and possible legal fees, you may end up owing more than when you started.
One of the negatives of debt settlement vs bankruptcy: if your debt is settled, you’ll have to pay a sizable fee to your debt settlement company as well as taxes on the amount forgiven. Is debt settlement bad for your credit? Most certainly. The debt settlement bad credit impact can be severe, and it may take more than seven years to restore your credit rating.
Getting advice on debt settlement vs bankruptcy.
Neither bankruptcy nor debt settlement is a simple process. That’s why, when considering debt settlement vs bankruptcy, it’s important to seek financial advice from a certified credit counselor. At American Consumer Credit Counseling (ACCC), we offer free credit counseling sessions that can help you to size up the benefits of debt settlement vs bankruptcy, as well as a variety of other options for finding debt relief. Our counselors are available six days each week by phone or in person to help you take stock of your financial situation and explore all your options for getting out of debt. We can answer questions like, “What is a debt settlement program’s impact on my credit rating?” and direct you to social service and educational resources that can help you to better address your financial issues.
Contact us today for a free credit counseling session to discuss the benefits of debt settlement vs bankruptcy, as well as other options such as a debt management plan.