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In recent years Debt Negotiation companies have exploded onto the scene. With the vast credit card debt impacting American consumers and their household budgets more and more people are faced with a question – am I better off filing personal bankruptcy or using a debt negotiation company?
Debt Negotiation – are companies that will contact your creditors and negotiate your debt downward. Most debt negotiation companies advertise that they can lower your debt by 40% or more. However, not all debt qualifies. Some debt (taxes and student loans) may not qualify. Before you hire a debt negotiation company be sure you understand what type of debt you have and how much of that debt may be eligible for their program.
Does debt negotiation work? Yes, in a lot of cases it can work. Let's say you owe $30,000 in unsecured debt. Those companies may be able to lower that debt to $18,000 (60% of $30k). Add their fee of a few thousand dollars and you may be able to whack 1/3 off what you owe. Did you catch the keyword "unsecured"? Be sure the debt you owe is unsecured.
Will Debt Negotiation hurt my credit? Absolutely it will negatively affect your credit. Anytime you fail to pay your debt your credit will be adversely affected. And by using a Debt Negotiation company you are walking away from a sizeable portion of your debt.
Is Debt Negotiation better than bankruptcy? Keep in mind that in both cases your credit and credit score will be adversely affected. Some will claim that Debt Negotiation will hurt your credit less than bankruptcy. That may not be entirely true since both instances involve you walking away from your debt and/or paying late.
Bankruptcy typically allows you to walk away from 100% of your debt (Chapter 7 Bankruptcy) or make payments (Chapter 13 Bankruptcy) between 3-5 years. The bankruptcy repayment plan usually involves paying in far less on your debt than a debt negotiation company would require. If your budget and income is strapped, bankruptcy may be your better option.
Can you recover your credit score faster through Debt Negotiation? Possibly, but again it depends a lot upon the decisions you make after you join one of these programs. If you continue to make poor personal budget decisions, get in over your head with debt, and not pay your debt in a timely manner debt negotiation may not make a difference in rebuilding your credit quicker.
Feel free to consult with a bankruptcy attorney found on our website to learn how bankruptcy compares with Debt Negotiation. Your initial consultation with a bankruptcy attorney is FREE.