Debt Settlement Or Debt Negotiation?

Online, February 17, 2012 (Newswire.com) - Debt settlement is often confused with debt consolidation. Debt consolidation is the process in which people borrow a lump sum to pay off their debts, which will combine their debt into one payment, and often at a lower interest rate.

Debt settlement, however is an altogether different. Instead of a new debt to pay off old ones, those who choose this path forgo paying their bills for a period of time and save up cash so that they can make a lump sum payment to their creditors to pay off an agreed-upon portion of the debt.

But the dangers of debt settlement are numerous. Fraud is a consideration, since there are many companies out there offering debt settlement assistance who are, shall we say, less than chaste. Then there are those who are too inexperienced to do anyone any good. In either case, you wind up on the losing end - and you've lost money that you can't afford to lose.

Obviously, if you choose to forgo paying your bills will result in damage to your credit. Not only will you see negative marks on your credit report, but you'll also see your credit score decline. The question you have to ask yourself, if you are considering debt settlement, is whether it's worth the damage to your credit.

These days, creditors have become quick to file lawsuits against people who don't pay their bills. This could lead to wage garnishment or a lien against your property. This is a real concern for those who are already struggling to pay their bills. You wouldn't want to add court costs and/or lawyer fees on top of that.

Many people who enter into debt settlement find out too late that the difference between what you owe and what you actually pay in a settlement is taxable income. The IRS will come looking for you if you don't pay.

And last of all, debt settlement can be expensive. Some debt settlement companies charge around 14 to 18 percent of the total value of the debt you have settled. In addition, debt settlement isn't fast. It takes time to reach a debt settlement - in most cases the average is about two years.

If you find that neither debt negotiation or debt settlement are options you wish to pursue, you may find that bankruptcy is your only choice. The average cost of filing bankruptcy is about $1,200 to $1,500, which is often less than the amount of debt owed. Bankruptcy can be a scary thing, but it does wipe your debt away and allow you to make a fresh start.