Monday, 6 June 2011

Debt Settlement Pros and Cons – There are so Many Ways to Deal with Debt

There are many pros and cons when it comes to debt settlement. Different types of debt settlement will have different effects on your credit and budget. Only a seasoned financial consultant is qualified to review all of the different types of debt settlement and evaluate their pros and cons. This article will provide some insight into the different avenues available to you in regards to debt settlement.

Debt consolidation is one way to settle your debt; there are different types of debt consolidations and they will achieve different results. If you have good credit and lots of disposable income but have recently accumulated debt on multiple credit cards; a low rate line of credit is a good option. Use this low rate line of credit to consolidate small credit card debts that have started to compound. Pro: low interest and consolidates debt, Con: It is too easy to fall into making minimum payments. If you make this choice you should make a concentrated effort to pay down your line of credit as soon as possible.

You may have a small credit card debt or other bills that have gone to collections, thereby damaging your credit. Perhaps you owe $5,000 - $7,000 and no one will give you a debt consolidation because of your bad credit. In these scenarios you can make settlements directly with your creditors. A financial professional should be hired to help you negotiate; they will get you the best deal possible. In many cases you may settle your debt for much less than you owe.

If you have accumulated so much debt that it has become unmanageable, do not panic. Depending on your specific circumstances, including your assets, your income, your debt and your creditors; you may qualify for any number of programs that have been made available by the Federal Government.

These programs include bankruptcy and consumer proposal.

A bankruptcy dictates that you make monthly payments for a determined amount of time while satisfying other conditions like participating in credit counselling and reporting your income. Until you have satisfied your obligations under bankruptcy, you will be “undischarged”. Keep in mind, bankruptcy trustees are court appointed officers whose responsibility is to administer bankruptcies and proposals.

Bankruptcy trustees represent the interests of your creditors and while you are undischarged, they will review your assets and income to see if things have improved. Quite simply, they are looking to find out if you have any excess funds to give to your creditors. If you have earned more money or acquired an asset, your trustee may assess “surplus” income, demanding half of the extra income you worked so hard to earn. At this point the bankruptcy trustee, who put their arm around you when signing you up, starts sending you letters demanding more money and more personal financial disclosure. First time bankruptcy will remain on your credit report for 6 years from the date it is discharged.

A consumer proposal involves making a settlement proposal to all of your creditors at once. If and when the proposal is accepted, the settlement is final. There is no ongoing obligation to the bankruptcy trustee other than to make the minimum monthly payments. The key is negotiating a fair proposal from the get go. Bankruptcy trustees are compensated for their services proportionate to the size of your consumer proposal. The more money you agree to pay to your creditors in a proposal, the more money your trustee earns. This may result in you being pressured into a larger proposal than you can afford to pay.

These debt settlement options have their distinct pros and cons and the fact of the matter is that you will receive the best advice about them from a financial consultant. A financial consultant is hired by you to help guide you towards solid and effective financial plans. Firms like DebtCare help individuals with the toughest financial problems, providing access to a number of programs designed to provide immediate debt relief. For more information about debt settlement pros and cons visit


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