Over the last five years debt settlement has become a common household term. You can’t turn on the TV or open your mailbox without seeing an ad for debt settlement companies that offer to settle someone’s credit card debt for a small percentage of what they owe. The reason that this has become part of American culture is because of the large amount of debt that Americans now have.
The average American has close to $20,000 in credit card debt and that number continues to rise every year. Combining with that fact the average income has continued to decline here in the United States. The average American is now making around $36,000 down from $42,000 5 years ago. Gone are the days of people being debt free and living within their means.
Now Americans can live like rock stars as long as they have available credit. Quantitative easing has allowed banks to once again pump the money out to mainstream America and allow consumers to suck up this cheap credit. It’s only been a few short years and it seems that America doesn’t remember what happened in 2008. History is once again repeating itself.
The reason debt settlement has become so popular is because people believe that if they settle their debts it won’t damage their credit as bad as filing for bankruptcy. This is not necessarily true. A debt settlement will show up on the credit report as a charge off which will stay on one’s credit report for seven years. A Chapter 7 bankruptcy will stay on one’s credit report for up to 10 years. The difference is, they both take a toll on one’s credit. For someone that has a large amount of debt it’s much better to file Chapter 7 bankruptcy and wipe the entire amount out and start over being debt free. To settle a debt one will need to come up with 50% of what is owed to give to the debt settlement company. Depending on the amount of debt owed, it might be a better idea to hire a bankruptcy attorney and file bankruptcy.
The downside to debt settlement is it takes a lot of money and time. During this time, the individual settling the debts is at the mercy of their creditors. When someone goes into a debt settlement company they will usually stop paying all of their bills and pay the money to the settlement company. The company will try to build up enough money in an account to offers settlement to the creditors. Hopefully, the creditors will be patient and not follow lawsuit against individual. Filing bankruptcy has the power of the automatic stay and stops all collection activity against the debtor. Creditors can no longer even contact the individual. The reason that many opt out of bankruptcy is they have this idea that creditors look highly on individuals that attempt to pay at least a portion of their debt back. As for that, I believe that all that is a concocted idea.