subject: Why Debt Settlement is a Better Financial Decision Than Filing Bankruptcy [print this page] Debt settlement has become a safer way to solve debt problems for many Americans. It is simply a method of negotiating with creditors in order to reduce overall debts in exchange for a lump sum payment. It is the best way to eliminate unsecured debts such as credit card loans not secured by real assets like homes or autos. For the debtor, this makes obvious sense, as they avoid the stigma and intrusive litigation controls of bankruptcy. And while that goes away, they get debt amount lowered, sometimes by more than 50% of their original debt balances. For the creditor too, it is a lucrative deal as they regain trust when debtors do not file bankruptcy (in which case, the creditor risks losing all money owed).
In order to work with a debt settlement company, a consumer needs lump sum cash, or alternately needs to build up enough funds over set period of time. For those without cash to make a lump sum settlement offer work, debt settlement companies set up a third party trust account where funds get accumulated for the settlement process. A legitimate company uses an FDIC insured trust account only. Once enough funds are built up the negotiation process begins with each creditor individually.
Settlement companies generally package their settlements into a larger bulk settlement with the creditor for 35% - 50% of the existing balances. The debt settlement companies can do so because they have built up a relationship during their other routine business practices with the credit card companies. Since they have a better approach and contact with the banks, they can come to a settlement agreement quicker and at a much better favorable rate than a debtor on their own. With the current economic crisis, more and more credit card companies are showing willingness to settle existing credit card debts rather than add to pile up their already large written off bad debt. Therefore the creditor's primary incentive is to recover as much money as possible that would otherwise be lost if the debtor filed for bankruptcy.
Bankruptcy is thus always a last resort. It will affect your credit for the next ten years.
Why Debt Settlement is a Better Financial Decision Than Filing Bankruptcy
