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.
Consider all other options before taking out a bad debt remortgage. You should ask yourself a few questions to determine what will work best for your situation. Can I reduce my payments through consumer credit counseling without taking out a loan? Will creditors settle debts for less than what I owe? Where can I get credit report advice, so I will know how paying off old debt may affect my credit score?
There are several different professionals like mortgage brokers, debt settlement companies, and consumer credit counselors that can help you find answers to the above questions. Friends or co-workers might be a good that have had debt problems may be able to refer you to a good debt professional.
Even if you have a lot of equity or own your home free and clear, most banks will not do this type of home loan. You may have to look for a private lender or hard money mortgage broker that has access to private lenders. If your credit is still good you might be able to get a debt consolidation loan that does not require a mortgage on your home. When you borrow against your home if you do not make the payments, you could lose your home.
If you are able to get a lump sum debt settlement you could cut what you owe in half by getting a home loan to settle your bad debts. Keep in mind that paying off old debts can reduce your credit score.
When you have tax liens or real estate taxes that have to be paid off to avoid the forced sale of your home, a private lender may be your only option. If this is the case refinancing, borrowing money from relatives, or a retirement plan are always a good idea to keep from loosing your home. Many borrowers get out of debt, improve their cash flow, and then run them right back up again. Be careful that once your are out of debt you regulate your spending and set up a reserve account for emergencies.
One way of reducing your outstanding balances is through negotiating debt settlement. This is the process of talking and consolidating with your creditors so that you need not to pay huge amounts of interest from your debts. By the end of the given period, you only need to pay one lump sum that is relatively lower compared to the actual money that you owe. If your creditor agrees with this setup then, it will translate to a successful debt settlement.
If you want to consolidate your debts, there are two ways of doing it. You can either choose to negotiate by yourself or ask a third party agency to come between you and your creditors.
Settling your debts on your own
The first thing that you have to do is to write your creditors. Begin by telling them that you are not able to pay anymore the minimum amount that they ask of you. Provide them the causes. If you recently lost your job and you live on a paycheck to paycheck basis, tell them all about it. Many creditors will appreciate the honesty that you are going to show because they will be able to understand you more and extend the help that you need from them.
After that, they might schedule an appointment with you together with their financial counselors. During this meeting, they are going to make payment schedules and talk everything that concerns your accounts. You have to make sure that you are going to follow all the guidelines and payment schedules as agreed based on your meeting.
Settling debts with a professional debt settlement company
People who do not want to be bothered with the endless phone calls and letters being sent out everyday to and from their creditors can ask for help from debt management agencies. These companies can offer you attorney debt negotiation so that you can settle your debts as quickly as possible.
If you are going to ask from help from third party agencies, the same process is involved. However, they can give you timely results. For example, they can negotiate with your creditors to give you a lower interest rate or to completely remove the interest charges so that you will be able to pay off your debts in due time.
One thing that you have to know in negotiating debt settlement is that you have to be very patient. It took a while for your debts to accumulate, so it will take some time too before you can settle them all.
