The decision to file bankruptcy versus opting for credit card debt settlement may seem like it's a tough call but after you examine the pros and cons, you won't feel that way. In the final analysis it's all about one thing: putting an end to the debt collection nightmare and getting on with your life! How you arrive at that point will affect the interest rates you will pay on future mortgages, car loans and credit cards.
For some people the decision seems simple - just take a deep breath, file bankruptcy and get it over with. Before you go down that road let's sit the two debt solutions side by side and evaluate which is better for your situation.
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Since we have been in this economic Tsunami of sorts, credit card debt settlement has really caught on. Maybe not like wildfire but it's getting its fair share of media buzz from both proponents and opponents. The basics of credit card debt settlement are pretty cut and dry; if you owe $13,275.89 on your Capital One Mastercard and you haven't made a payment in let's say fourteen months, you are a candidate for credit card debt settlement. In that time Capital One would have charged off the account and turned it over to a debt collection company.
At some point the debt collection company will attempt to call you collect the debt. If that doesn't work, they normally send out a credit card debt settlement offer that reads something like this:
Creditor: Capital One Mastercard
World Wide Dummy Financial Services, a debt collection agency, is offering you a settlement on your account. This is an attempt to collect a debt. Any information obtained will be used for that purpose.
Acceptance of this offer will completely absolve you of his debt with the above-named creditor. You will owe no more money on this account.
Your balance is: $13,275.89
We will settle your account in full for: $6637.95
We need your payment by: 90 days from the date of this letter.
If you need information, please call today at: (123)-456-7890
As you can see from the first offer, there is a 50% reduction of the current balance. What you can glean from that first offer is this; if you settled the account yourself, you could probably knock off another 25% to 30%. How did I come to those figures?
By eliminating the debt collection company and dealing directly with the creditor. The commission, on the money they collect is going to be anywhere from 25% all the way up to 80% depending on the type and age of the debt. If they were getting paid a commission of 60%, and you paid the $6637.95, the creditor would receive $2,655.18 and the debt collection company would get paid $3982.77!
If you are keeping track of the numbers, the creditor ending up settling the account for $2,655.18. That figure is much greater than they would have received in a Chapter 13 bankruptcy! Of course in a Chapter 7 they would have receive nada! You can be rest assured that in the process of negotiating a credit card debt settlement that creditors will weigh these critical facts.
Here are a few other reasons why. Bankruptcy stays on your credit profiles for 10 years; a settlement stays on your credit profile for 7 years. With bankruptcy you have to pay the filing fees, courts costs and attorney's fees and you have to pay for and take the pre-filing debtor education course. You literally have to apply to file and most people are forced into a stringent Chapter 13 repayment plan. If you fall out of the plan for whatever reason, your case is dismissed and you are back to square one! Meaning, all of the money you paid to file bankruptcy is lost! This is why Credit Card Debt settlement is a much better path to take than bankruptcy.
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