Debt Settlement vs. Bankruptcy
You are stuck in a dilemma to figure out which option to go for repaying your loans. You must have come across the terms Debt Settlement and Bankruptcy while looking for easier ways to settle your debts.
When to Consider Debt Settlement or Bankruptcy?
Suppose you are stuck in the endless loop of loan repayments. When a significant portion of your hard-earned money goes into the installments of your loan. When there is not much money left for your plans when you have multiple personal loans or credit card debts.
What is Debt Settlement?
It is the process of combining all old loans into a new one with only one repayment, which is marginally less than the other installments you were making for multiple loans. In the long run, it saves you a lot of money in case of numerous personal loans.
What is Bankruptcy?
Discharging some or all your debt, repaying some debt with a new repayment plan, is called filing for Bankruptcy. It is the best option if you want to restart your financial life, and repaying the full amount of the loan is impossible.
Despite these being good options to save you money, both eventually reduce your credit score for quite some years.
Pros of Debt Settlement:
- Single Monthly Repayment – Instead of paying multiple lenders different amounts of interest every month. You must pay just one single installment in a month.
- Reduced Interest Rate – Just how it combines multiple loans into one and single repayment reduces the interest rates. Before you were paying several interests on different loans, now just one loan with one low-interest rate.
- Puts an End to your Debt – Personal loans like credit card debt has no predetermined last date, whereas debt settlement does. At the same time, most loans put you through an endless cycle of repayment. They are making it take forever to repay the full loan. Many lenders even trap you into long term repayment plans. By promising low interest, which eventually makes you lose more money.
Credit Score improves later – Although your credit score will drop initially later.
Cons of Debt Settlement:
- Your Credit score suffers – For a couple of initial years of debt settlement, your credit score is most likely to be affected negatively.
It would help if you had a substantial credit or a solid cosigner – So that your credit score is not damaged completely.
Pros of Bankruptcy:
- Reset your Financial Life – You establish a 3 to 5 years repayment plan, which might give you a single monthly payment option. And eventually, start over after the repayment.
- Rebuilds Credit – For the short term, it does harm your credit score; however, it can eventually be improved. Only your borrowing reputation is hampered for some time.
Cons of Bankruptcy
- Discharge Debt – Discharge of debt happens by disposing of some of your assets and might have to forfeit your property as well.
- Lawyer and Court Cycle – You might have to be hooked with a lawyer along with court fees.
- No Clean Slate – No one will readily approve your loans within your five years of filing Bankruptcy.
Consider your option from what you owe to what and how much you have left. Way your 4Cs’ of Credit, that is Capital, Capacity, Credit History, and Collateral. Put them in both situations and see how much you currently have and how much you will have to lose considering both options.
When you decide to go for any of the above options, the best is to have a professional do it for you.
Contact CreditMyDebt for an online consultation to provide you the best debt settlement in New York City with the perfect solution.