If you’re given an option to choose between debt settlement and bankruptcy, which one you would like to choose to get rid of your debts? Of course, your answer would be debt settlement as you retain your assets as well as pay off your debts in full. In debt settlement, your credit score doesn’t get down that much but in bankruptcy, the credit score goes down by around 250 points.
Advantages of debt settlement
Debt settlement is really advantageous for debtors and if you want to reduce your debts and lead a debt free life, you can surely go for a debt settlement option. Check out the advantages you get when you go for debt settlement:
1. Settles your debts faster
When you go for a debt settlement option, the negotiator negotiates with your creditors to reduce your principal balance and also reduce the rate of interest. The extra charges are also waived off or reduced. This help you pay off your debts faster and get debt free. You need to pay single monthly payments with a single interest rate and this all the more reduces your outstanding balance. The creditors stop harassing you and you can pay off your debts fast.
2. Retains your home
The debt settlement options helps you pay off your debts fast and also helps you repair your credit report. You can retain your property and at the same time build the equity on your home too. If the debts in your credit report are put as “paid in full”, your credit score doesn’t suffer much. If you’re negotiating with your creditors on your own, try requesting them about this thing or your credit score will be highly affected.
Disadvantages of bankruptcy
As advantageous is debt settlement for your finances, the more damaging bankruptcy is for your finances. Take a look at the disadvantages of filling bankruptcy:
1. Credit score gets affected
The credit score gets affected a lot. The score goes down by around 250 points and it remains in your credit report for 7 years. You need to make a lot of changes in your lifestyle before you get eligible for taking out another mortgage or another loan. You need to curb your spending habits and you also lose your home and other assets to bankruptcy.
2. Starting from the initial stage
You need to start from the initial stage to set-up your finances and create a new credit report. That can take a lot of years and if you had your home, you could have started a business or made use of your house in some other way. But since, you don’t have your assets; you may have to take out a loan or a mortgage to buy a new home. You also have to have a good credit score before you can take out a mortgage.
The points above will help you decide between bankruptcy and debt settlement. Debt settlement is anytime better than bankruptcy and gives you a chance to repair your credit report.
