Bankruptcy or Debt Settlement?
There is no doubt about it, if you are considering either debt settlement or bankruptcy, the chances are you are in some sort of trouble financially, and looking for an escape.
Well, there is good and bad news attached to this. On the one hand you are feeling overwhelmed due to the crippling debt piling up, and on the other you know that options exist that will help to relieve that debt.
Knowing your options is key to deciding which path is right for you.
Don’t think of it in terms of “which option will get me out this mess faster?”
The most dangerous decision you can make is acting too quickly to find a fast track to solving your problem. Regardless of which option you select, it’s not as if your debt will be erased over night.
It is important to keep a cool head when deciding which debt relief option is for you. The best way to do that is to not lose focus of your main goal—getting out of debt.
Now, knowing this, you can look at your situation and decide which road you want to take. Both are filled with pros and cons, but I’m sure you were already expecting that.
Lets take a look at the facts.
Everyone knows that one’s credit score is a common concern for all those seeking help or relief for their debt. However, credit should not be your main focus. Your credit score is important, without a doubt. But the fact of the matter is if you currently have a lot of debt, chances are your credit score isn’t too hot anyway.
Let’s talk about bankruptcy first.
For whatever reason, people think of bankruptcy in the same way that they think of lifeboats. Something that you would prefer to not use, but are happy to have when it’s needed. There is a lot of fact and fiction attached to bankruptcy as a means for debt recovery.
There is no way of getting around simple truths when talking about bankruptcy, Chapter 7 and 11 specifically. When you choose these options, your credit report reflects the decision for 10 years after filing. Chapter 13 will hang around on your credit report for up to 7 years. Not exactly that one-and-done debt relief option you were hoping for? Unfortunately it comes with the territory when thinking about bankruptcy.
Here’s the main thing you need to accept when considering filing for bankruptcy. If your credit or FICO score was in great shape before filing, get ready for a dramatic drop. However, if you already had a mediocre or sub-par credit score, the drop in score won’t be as noticeable.
Let’s talk about the concept of bankruptcy a little bit more.
Bankruptcy is seen as this beautiful bailout for people in debt. It doesn’t matter what kind of debt either, credit card debt, medical debt, business debt, everyone thinks of it the same way.
They think “hey, I’ve run out of options, so I’m just going to file for bankruptcy” not knowing some of the major consequences of doing so. Some may or may not already know that their credit score’s are about to take a hit. Most definitely do not realize that there is a very good chance that they will need to pay back at least a part or most of the debt regardless!
Okay, so, bankruptcy does drop credit scores more than debt settlement, but what are the actual numbers?
For bankruptcy, you’re looking at an immediate cut of 200 points to your credit score. With this kind of a hit to your credit score, you can pretty much forget about qualifying for a house, car, or credit card for the indefinite future.
Going off this alone, you can easily recognize that bankruptcy definitely has its drawbacks. But maybe you’re still wondering, how do I know if debt settlement is a better option?
Well, the truth of the matter is your debt problems and debt resolution will not come without some sort of risk—usually involving credit. Debt settlement and debt management simply consolidates your risk moving forward. Your in a place right now, and we can definitely appreciate that.
Debt settlement is an option for those eligible, looking to get on a steady path to resolving debt. Yes, debt settlement will do some damage to credit scores as well. Mind you, the penalty is far less severe as the one attached to bankruptcy. On average, debt settlement will cut your credit score by 50 points. That may seem a little scary, but think about the 200-point drop you’d be facing with bankruptcy.
What it really comes down to is the stage of debt you find yourself in at the moment.
Once you determine what stage you are in, you can better judge what risks you can afford to take. Learning more about debt settlement and debt counseling will benefit you in the long run.