Debt Consolidation Is Not The Only Alternative To Debt Settlement

When you consider the bottom line of all available options for debt relief it may seem that debt settlement is indeed the best and least expensive way to get rid of your debt. However, the final choice will depend on different factors and parts such as:

  • The amount of money that you owe to the creditors
  • The amount of time it will take to finally come out of debt and
  • The amount of stress and hassles involved in the process as compared with the other debt relief alternatives.

When you opt for debt settlement you usually lower the total amount outstanding to your creditor. The creditor may waive off a few fees and interest amount but may not reduce the rate of interest. It is also at the discretion of the creditor whether or not to stop the collection effort for nonpayment or sue you for the same.

Though this will reduce the initial debt amount and you can pay the amount agreed in a lump sum or in parts as agreed, debt settlement will come with its own set of disadvantages such as:

  • It will have a severe impact on your credit score taking it down anywhere between 500 and 550.
  • In addition to that, the fact that you have settled your debt will remain as anegative point in your credit report for seven years at least.
  • Moreover, you will have to pay taxes on your forgiven amount because as well as per the rule of IRS it will be considered as your income from other sources.
  • Lastly, if you wish to work with a debt settlement company you will have to pay a considerable amount to them for their services.

All these means that the relief you were looking for may actually become a pain in specific cases of debt settlement.

Comparing debt settlement alternatives

The most prudent approach towards dealing with your debt is by researching all your options provided at or other such sites. These options may include:

  • Consulting with a credit counseling agency
  • Talking to a debt management expert and
  • Getting in touch with a bankruptcy attorney.

This will help you to understand all the various options and help you to make an informed decision.

When it comes to dealing with your unmanageable debts, there are literally several alternatives to debt settlement. However, the one to choose will largely depend on your credit profile which should be intact and you shouldn’t have experienced a hardship. The most common ones however seem to be:

  • A debt consolidation
  • A debt management plan
  • Filing a bankruptcy
  • Opting for balance transfers in case of credit card debts
  • Applying for a HELOC or Home Equity Line of Credit and
  • Obtaining a person loan.

You will need to compare all these alternatives and then consult with an expert credit advisor to make the right choice.

Debt management plan

When you compare debt management with debt settlement you will see that:

  • Debt management companies typically work as an intermediary between the borrower and the creditor to whom the money is owed.
  • In this approach the enrollee usually deposits a sum of money into a special account that is typically managed by the debt management company.
  • This money is then used to pay off the creditors over a certain period of time which ranges typically for 3 to 5 years.

The period of debt management plan is inflexible because it is the creditor that actually sets the maximum time limit within which the debt should be resolved.

Bankruptcy as an option

In place of debt settlement sometimes filing for bankruptcy can also be a feasible option, though this should always be your least favored financial decision.

Ideally there are two main types of bankruptcy that you can choose from: Chapter 7 and Chapter 13 bankruptcy. Both have its significant features but however student loans are normally not discharged in either type of these bankruptcies.   

The primary difference between these two types of bankruptcies is that:

  • In Chapter 7 bankruptcy all your debt is wiped out irrespective of the amount that you owe. However, to qualify for Chapter 7 bankruptcy you will need to meet the set income guidelines that are based on means testing. This is the information that is usually determined by the Census Bureau as well as the Internal Revenue Service. These income guidelines are framed according to your income based on the size of your family as well as the laws of the state where you live. When that is determined, the next step is to decide whether or not you have enough money remaining in your hand and disposal to repay a portion of your outstanding debt in case your income is found to be more than the median income. You can visit the Census Bureau website to know about the recent Median Family Income by Family Size for May 1, 2019 and beyond.
  • On the other hand, if you file for a Chapter 13 bankruptcy as an option to get rid of your outstanding debt, it will take much more time than a Chapter 7 bankruptcy that can be completed in less than a year as compared to the five-year time limit of Chapter 13 bankruptcy. Moreover, Chapter 13 bankruptcy is more involved and it also has a few restrictions on the amount of debt you can include. However, a Chapter 13 bankruptcy is very much similar to any structured settlement plan wherein you pay some or all of the debts. This amount however will depend entirely on the type of debts that are included in the bankruptcy and the actual amount that you owe to your creditors. There is also a payment priority here where the lawyer is paid first and lastly the unsecured creditors.    

Therefore, it is important that you fully understand the pros and cons, features and requirements of all other debt relief alternatives and compare your available options before you write ‘Debt settlement is the best alternative to choose to get relief from debt fast’ on stone.

An undergraduate and avid netizen, Suman is the youngest member of Loudhere family. She manages the News and Current Events category here. Also she employs her SEO skills to make this more searchable.