We have many people come to our office looking for a new solution. They often have tried debt settlement on their own or used a debt settlement company. What they often find is that they did not have enough cash on hand to make the requested payment to the credit card company. In other cases, the debt settlement company used ended up piling on fees, automatically deducted money from their account, or did not reduce their debt enough to make much of a difference. Worse yet, they found that they were unable to get out of the contract.

Is there a difference between debt settlement and debt consolidation?

We have previously explored what bankruptcy does when compared to debt consolidation; however, debt settlement is not the same thing as debt consolidation. So, to familiarize yourself with the difference between debt consolidation and bankruptcy, click here. So, what is debt settlement?

Debt Settlement

Debt settlement is a process by which you work with your creditors, either on your own or with assistance, to settle a delinquent account by offering to pay a lump sum that is less than what is owed. This is not to be confused with debt consolidation, which we have previously discussed.

You can find assistance for debt settlement with an attorney or a debt settlement company to negotiate the reduction in the debt amount to settle the account. Keep in mind that you will need to have cash on hand to pay the lump sum and the attorney or company. Not all debt can be handled through debt settlement.

When considering debt settlement assistance, either through a company or a qualified lawyer, be sure to do your research. Avoid companies that pile on ongoing fees or even require high up-front fees. You will also want to be wary of anyone who promises to fix your credit score. The only way to remove negative information from your credit score, is if it is inaccurate. Finally, guaranteed results are also a red flag to be mindful of, as the company cannot promise that a creditor will settle your debt for any amount. This is not to say that you cannot find a reputable attorney or company to assist with debt settlement, but these are three main things to be mindful of when doing your research.

Already working with your credit card company or a debt collector?

If so, they may be discouraging you from filing for bankruptcy. They may say that bankruptcy will negatively impact your credit score for years. Or, they will promise to handle your debt better. Do not let these companies scare you away from any other options. Take time to consider all of your options! You may find that bankruptcy could be better option for you. Remember, credit card companies and their affiliates have an investment in keeping you away from bankruptcy – they want to continue to get paid.

Why bankruptcy?

While bankruptcy may seem like a scary endeavor, it is a viable option to reduce or eliminate your debt. Bankruptcy will function differently depending on which chapter you file under. The most commonly used chapters are Chapter 7 and Chapter 13. Each chapter will either allow you to discharge or come up with a repayment plan to pay off a smaller portion of your debt. Your attorney will go over which debts will be considered unsecured or secured, and the types of debts that will not be able to be discharged.

Bankruptcy and debt settlement are not the only options available for handling your debt. So, if you would like more information as to which options will work best for you, schedule a consultation today.