Bankruptcy Alternatives - Debt Consolidation - Debt Settlement

There are two bankruptcy alternatives:

1. Debt consolidation
2. Debt settlement

Whether bankruptcy or debt settlement negotiation is better for you depends on your financial situation. Bankruptcy is extreme. It does provide debt relief, but there is a price to pay. Bankruptcy stays on your credit reports for 10 years after discharge. It will affect your ability to get credit for the next ten years. So, the next time you want to lease a car or buy a house, you will have some serious explaining to do to get your loan. In the majority of the cases, you can avoid bankruptcy.

Debt consolidation is a bankruptcy alternative. Debt consolidation is not an elimination of debt, but a combining of all of your debt into one loan. Companies which do debt consolidation try to qualify you for a loan for the amount of your outstanding debt. They will then use this loan to pay off the outstanding debt. This in exchange for the monthly loan fees.

If you do not qualify for a loan, then the debt servicing company will deal with your creditors directly to set up a monthly repayment plan. The debt counselors negotiate with the lenders to get a reduction in fees or interest. Once this is accomplished, you will make monthly payments to the debt consolidation service, instead on the creditors. The service then makes the payments to the lenders.

The whole point of debt consolidation it to elimination of several smaller payments for one payment. Just this alone can bring you relief. No more keeping track of several payments every month. Plus, with every payment, your are one step closer to debt free and an improved credit rating.

The debt settlement is another bankruptcy alternative. This involves getting a settlement agreement between you and your creditor. A debt settlement agreement is used to decrease the size of your debts. Your end of the bargain is to come up with a prompt repayment plan. This typically involves a lump sum. With successful debt negotiation, it might even be possible to reduce your debts by half.

A debt settlement agreement is not the same as debt consolidation or management. In a debt settlement agreement the lenders agree to waive some of the principal. This does affect your credit rating, but not as severely as bankruptcy.

Whether you need to file for bankruptcy, get a debt settlement, or apply for a debt consolidation loan is completely dependent on you financial situation. It is easy to locate debt consolidation services, debt settlement and bankruptcy services on line. But always check out the company through resources such as the better business bureau.

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