Debt Consolidation or Debt Settlement Rather than Bankruptcy
By: Brad M | Posted: 05th July 2007
Debt settlement and debt consolidation programs provide more efficient methods for consumers to handle debts than bankruptcy. Consumers who face money problems and who consider bankruptcy should seek either debt consolidation or debt settlement to reorganize their finances.
Debt consolidation involves consumers obtaining a loan and using the proceeds to pay off all high-interest debts. This method allows consumers to reduce interest costs and make payments to only one creditor.
Debt settlement programs, in comparison, help consumers with debt problems by negotiating with creditors to reduce the total principal debt. Consumers repay a portion of the total debt, but creditors accept the partial payment to settle and close out the outstanding account. Debtors can regain control of their financial situation with debt settlement programs by saving money to repay their debts, and help them avoid bankruptcy.
Creditors are more willing to negotiate with debt settlement companies because they recover funds that would otherwise be lost if consumers filed for bankruptcy. The creditor only receives a portion of the debt – usually much of the original principal - but they accept a portion rather than the possibility of nothing at all through bankruptcy.
Bankruptcy damages a consumer’s credit record for at least seven to 10 years, but the stigma remains on their credit history for life. The alternatives provide consumers with the means to rebuild their history and improve their credit score. Debt consolidation allows consumers to repair their credit record through timely repayments. Debt settlement allows consumers to improve their poor credit rating immediately after completing the settlement program.
Debt problems can engulf consumers, but they can eliminate these problems while avoiding bankruptcy, with either a debt consolidation loan or a debt settlement program. Both methods provide consumers better alternatives to handling debt and improving their future finances than bankruptcy.
About the Author
Brad M is a financial writer for http://www.creditsolutions.com specializing in personal debt.
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Tags: financial situation, creditor, credit score, saving money, repayments, debt consolidation loan, debt problems, debtors, interest debts, poor credit rating, debt settlement companies, debt consolidation programs, debt settlement programs, debt settlement program, bankruptcy bankruptcy, interest costs, money problems, avoiding bankruptcy, negotiating with creditors