GavaldaFX Forex Blog

Wondering which route to take – credit card debt settlement plan or to file for bankruptcy? This choice is far from clear cut for many people with debts but it becomes easier if you take into account a few issues. It may well feel right at the stage you are at to just get rid of all of the stresses and hassles and file for bankruptcy, but is this really the best option for you? Let us look at some facts.

Let us presume you have been struggling for some time to meet your credit card bills – even the minimum payments are a bit of a struggle now. Your credit card company have thus sold on your debt to a collection agency. Usually within days of this happening the collection agency will be in touch (or endeavor to do so) with you both by telephone and by letter. Its not at all pleasant either! They want their money and they want it now!

However, if not in the first instance, at least some way down the line, they will reduce the amount they are asking for, and very often it will be a very significant reduction of what was once the original debt. If you go ahead and pay, the debt collection agency will get, lets say, around 60% of the final payment you make, leaving just 40% of that for the original creditor/s.

You must be asking why the original creditor would be willing to accept such a small amount compared to what is owed, but before I answer that, lets have a quick look at some figures just to make all this clear.

- Lets imagine you owe $20,000 to your credit card debts.
- The debt collection agency is asking for a full payment of only $10,000 from you to fully settle the debt.
- The collection agency thus gets 60% of this = $6,000.
- The original creditor receives the remaining 40% = $4,000.

The credit card company will obviously receive a much-reduced amount to what is actually owed to them and the reason they are willing to accept this is that they compare this figure firstly to what they would get if you were to declare Chapter 13 bankruptcy – they would get less. If you were to declare Chapter 7 however, they would get absolutely nothing!

But is this any clearer to you now than before? Probably not much. So, ask yourself this:
– how long does bankruptcy stay on your credit file?
Answer: 10 years
– how long does a settlement stay on your file?
Answer: 7 years

Furthermore, if you do go down the bankruptcy route, you have to find the filing fees, the attorney costs, the court costs and also the pre-filing debtor education course, which you then have to sit in for. Add to this, if you do not continue with the plan your case will be dismissed and you are back to the beginning again, which means all associated costs paid to go bankrupt are gone too.

Thus, unless your debts are totally insurmountable, its a wise choice to go for the debt settlement plan, don’t you now agree?

You can learn more about credit card help and about a debt consolidation program to suit your needs.