Debt Settlement Vs Bankruptcy – What Do Debt Settlement Firms Actually Do for the Consumer?

There has been a long nurtured debate over debt settlement vs. bankruptcy. On one hand, the proponents of bankruptcy claim that in debt settlement, a person has to repay at least 40% of the unsecured debt and that has to be done in one single payment but in bankruptcy, the consumer can eliminate the entire debt! On the other hand, the proponents of settlement claim that in bankruptcy, a person has to suffer immense financial troubles in the future. The person will lose credibility for 7 to 10 years and during that period, he or she cannot borrow any further money from any lender. They claim that in debt settlement, though the credit score of the consumer goes down, the impact is temporary and once the consumer pays off the creditor, the credit score goes up and the person gets back his or her credibility. It can therefore be seen that debt settlement wins over long term in the debate of debt settlement vs. bankruptcy.

The settlement firms which negotiate with the creditors have a complete understanding of the banking industry. They know how the system operates and they are also aware of the shortcomings which are a part of the system. The settlement companies make use of these shortcomings to help the consumers to get out of debt. They ask the consumers to stop paying the lenders. To go delinquent is a tough decision to take but once the borrowers does so, the creditors wait for a period of 12-16 weeks and then sells off the debt to a collection agency for as low as 20 cents to 30 cents per dollar. The settlement companies then approach the creditors with a more lucrative deal of 40-50 cents on the dollar. The deal is lucrative for the creditors because it means 100% return on investment for the collection agency. The lenders generally agree to the deal and eliminate at least 50% of the unsecured debt that the consumers have. This is what the settlement companies do for the consumers.

If you have over $10,000 in unsecured debt it may be a wise financial decision to consider a debt settlement. Due to the recession and overwhelming amount of people in debt, creditors are having no choice but to agree to debt settlement deals. To find legitimate debt reduction help in your state and get free debt advice then check out the following link.

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