Use your judgment before you choose to settle your credit card debts

It’s true that credit card settlement can relieve you of your ever increasing credit card bills. Yet, before you decide to settle your dues, it’s better to look at every other possible alternative. Almost everybody knows by now that bankruptcy may offer you with a fresh financial start. However, settlement seems to be a better option. Find out why.

Why settlement is better than bankruptcy?

Debt settlement or bankruptcy - which is better and convenient? Check out the comparison done below to know the answer.

  1. Costs and fees associated: In a settlement program, you have to pay the credit card debt help company a certain portion (often 20%-25%) on the amount you save through negotiation. However, if you file for bankruptcy, you need to get help from a professional bankruptcy attorney by paying $1,500 and often several times than that, and moreover have to pay the court fees (something around $300).
  2. Tenure: Chapter 13 bankruptcy filing often takes around 3-5 years to complete, which includes the bankruptcy petition, mandatory credit counseling session, creditor's meeting (341 meeting), distribution of assets and bankruptcy discharge. However, the tenure of debt settlement depends on the debt amount. If the debt amount is low, it can be settled within much less time than what bankruptcy procedure demands.
  3. Credit report: In a credit card settlement program, your credit score drops as you don't pay off the full balance and the creditors report the accounts as "Paid as Settled" or "Paid as Agreed" to the credit bureaus. However, in a credit card settlement, you can compel the creditor to remove all the negative information from your credit report just through a “Pay for Delete” agreement. While, if you file for chapter 7, this remains in your credit report for 10 years from the date of filing. On the other hand, chapter 13 stays on your credit report for 7 years after the repayment is completed.
  4. Convenience: Debt settlement is much more convenient than bankruptcy. In a credit card settlement program, the settlement company handles everything on your behalf so that you can become debt free. However, bankruptcy is a hectic procedure. Apart from consulting a professional attorney, you have to remain present in the court premises on the hearings, attend a credit counseling session, attend creditor's 341 meeting and fill out a lot of forms.
  5. Future employment: These days, whenever you apply for a new job, some employers enquire whether you've filed any bankruptcies in the past. Based on this information, any potential employer can reject your candidature. However, this is not a case with debt settlement.

How can you choose an ethical settlement company?

First, shop around for a legitimate and ethical firm to get help with your credit card debt elimination. Simply enter the company's name with the word ‘complaints' into a search engine and go through what others are saying. Wise up and choose someone whom you can trust with your money. Below are 6 tips to find out a reliable and honest company.

1) Research: Shop around as many companies as you can. These days, there are many credit card debt reduction companies - some are trustworthy, most are bad. So you should cautiously shop around and compare the options you come across.

2) Ask questions: Ask anything and everything to the company that you want to know. Enquire about their fee structure, how they will settle your credit card debts, whether or not they will prepare the credit card settlement letter on your behalf, and if they will handle the collection calls from the creditors or collection agencies. If you are not satisfied with the answers they provide, get back to tip #1.

3) Check out with the BBB: Check with the Better Business Bureau (BBB) to know how many complaints have been filed against the company and how they have responded to them.

4) Get everything in writing: Make sure you get everything in writing before getting started. If you don't, then you certainly run the risk of getting ripped off! Therefore, before signing the copy of agreement, go through it carefully.

5) Disclosure requirements: According to the Federal Trade Commission (FTC), before a consumer signs up for the services of a debt settlement company, the company must give out legitimate information about the program's:

  • Price and terms: The company must explain its fees and must disclose any condition on their services.
  • Results: The company must disclose how long it will take to provide you with results.
  • Non-payment: If the company asks you to stop making payments to your creditors, they must tell you about the consequences of doing so.

6) Follow up: See if the company provides you with reports of progress in your case. As the credit card accounts are in your name, you hold the rights to know what's going on with your accounts.

Credit card debt has become an indispensable part of everyone's life. If you can't thing of living without this plastic money, you have to bear credit card debt burden. Though settlement of credit card debt is not the only way out of this crisis, it's undoubtedly the best to help you with your crushing credit card debt.

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