Debt Settlement or Bankruptcy Which is Better?

When I was burdened with excessive debt, I was weighing the advantages and disadvantages of debt settlement vs bankruptcy. I consulted my brother regarding this and he told me that each choice has a few benefits but also a lot of drawbacks. I will share with you a brief overview of the advantages and disadvantages of debt settlement vs bankruptcy, as well as some information on beneficial alternatives that my brother suggested me.

Debt settlement or bankruptcy which is better?

Finding the most direct route out of debt is the same problem that debt settlement and bankruptcy address, and each has benefits and drawbacks. Making the proper choice is difficult. Bottom line: If your debts are so large that you are unable to foresee paying them back, it is necessary to weigh both possibilities in order to rebuild your credit and financial stability.

When to consider bankruptcy or debt settlement?

You have a debt problem that has to be addressed if your monthly debt payments, not including your mortgage or rent, are more than 20% of your income. The merits of a debt settlement plan over bankruptcy will depend on the severity of the issue, as well as your capacity and dedication to solving it.

The following situations indicate when debt settlement may be the most advantageous method of debt relief:

• You are able and willing to work out a settlement agreement with creditors or debt collectors that you can afford.

• Your promise to make a lump-sum payment will result in your creditors agreeing to significantly reduce the amount of debt you owe them.

• Your income is steady enough that you can continue to pay your rent or mortgage, as well as other necessary obligations, in addition to the payments imposed by a debt settlement, and still have some cash left aside for unplanned needs.

Here are several situations where filing for bankruptcy is preferable:

• Bankruptcy protection is a "last resort" once all other debt relief options have been used up or are deemed insufficient.

• The Chapter 13 bankruptcy might assist you in catching up on your payments even though you are in danger of losing your house to foreclosure.

• You would have to take money out of your emergency or retirement savings to pay off your debt. Individual Retirement Accounts (IRAs) and 401(k) accounts are protected from creditors during bankruptcy proceedings.

• You are unable to pay off your debt without using payday loans, which have extremely high interest rates.

• Due to your job loss, you are unable to make your debt settlement instalments.

• It will take more than five years to make any effort to pay off debt.

Keep in mind that these are merely basic recommendations. Anyone contemplating the benefits and drawbacks of debt settlement vs bankruptcy should speak with a nonprofit credit counsellor.