Debt settlement is a tried and true method to fix your credit and lower the debt you owe. That doesn’t mean there aren’t alternatives, though. Some of these alternatives may be better for you in specific situations. Not everyone needs a debt settlement program. Many options out there will lower outstanding debt and get you on the path to improving your credit history.
Debt resolution services as an alternative to Debt Settlement
When you use a third-party debt resolution company to help you with your debt, you tell your creditors that you are having financial difficulty and need help. The credit card company will “take care of the negotiations” with no further consequences to your credit, and in many cases, they will reduce your debt so you can pay it off more easily. Debt settlement, on the other hand, will adversely affect your credit. But not as adversely as bankruptcy would. Bankruptcy will likely remain on your credit record for at least seven years, but a debt resolution service can quickly improve your overall financial outlook. By contrast, most people can recover some of the loss using a debt settlement service.
The service agency you use will typically start by reducing your minimum payments. The agency then negotiates a new interest rate (settlement rate) for you that is lower than your current rate. The agency will be able to have your creditors reduce the principal balance and any fees or penalties recently added to your account so you can pay off your debt more quickly. The service will usually price out a lump sum to pay off each creditor once the settlement is reached.
Credit Repair Versus Debt Settlement
Most credit repair services can help you resolve your debt issues. This is very attractive since bankruptcy means you will damage your credit for many years. Also, any loan you apply for will depend on your credit rating, and your chances of getting that loan will be reduced since your credit report will reflect your inability to pay off your creditors. Creditors are always keen to avoid bankruptcy for their clients. The service will cost you money. However, credit repair could be the best option if you’re trying to avoid working with any debt settlement companies in our directory. Many of these companies have been around for years and will offer excellent services on par with many of the best credit repair services.
The disadvantage is the long term. You are lumped into a legal contract that may take up to 10 years before you are debt-free. In most cases, you must be at least 70% clear of your debts to perform the service, so you are getting rid of part of your credit. Ultimately you want to compare the pros and cons of debt settlement to determine which option is your ideal solution.
Credit Counseling as an alternative to Debt Settlement
Another option is the Consumer Credit Counseling Service (CCCS), a non-profit group that will help you create a budget or develop a system to pay off your debt. CCCS does not provide a service itself; instead, it negotiates your debts with your creditors so that you can wipe out your debts and turn your life around. This is a very flexible system, but it does have its downsides. The CCCS leaves you with a lump sum payment you need to put away for about ten years, and if your income increases (worse for you, that increased income could mean less money available for payments), you will have to pay off the CCCS payment as well.
Before deciding to go this route, you need to be able to pay on a five-year basis comfortably. There’s no alternative if you need to file for bankruptcy.
Bankruptcy as an alternative to debt settlement
There are penalties if you go bankrupt first. In the USA, the bankruptcy laws have changed, so you need to have six months in bankruptcy. If you don’t get six months in bankruptcy, you may have to pay some of the debts during your bankruptcy. You also lose the unsecured credit card you used to pay off the secured creditors, which can be a problem for debt settlement companies in FL.
It would be best if you thought long and hard about the reason you were in debt in the first place and what you will do to change things. Pay off your debt as soon as you can by resuming old habits. The first step is to get some of the most significant loans paid off, and then see how you will be responsible financially for some time. You can always look into other financial options.