How has debt settlement become so popular?
In the last five years, debt settlement has become a common household term. You can’t turn on the TV or open your mailbox without seeing an ad for debt settlement companies offering to settle someone’s credit card debt for a small percentage of what they owe. The reason this has become part of American culture is because of the large amount of debt Americans now carry. The average American has close to $20,000 in credit card debt, and that number continues to rise each year. Combined with that fact, the median income has continued to decline here in the United States. The average American now makes about $36,000 down from $42,000 5 years ago. Gone are the days when people were debt free and lived within their means. Now Americans can live like rock stars as long as they have available credit. Quantitative easing has allowed banks to once again pump money into the US mainstream and allow consumers to soak up this cheap credit. Only a few years have passed and it seems that the United States does not remember what happened in 2008. History repeats itself once again.
The reason debt settlement has become so popular is because people believe that paying off their debts won’t hurt their credit as badly as filing for bankruptcy. This is not necessarily true. A debt settlement will appear on your credit report as a cancellation that will stay on your credit report for seven years. A Chapter 7 bankruptcy will stay on your credit report for up to 10 years. The difference is that both affect one’s credit. For someone who has a large amount of debt, it is much better to file for Chapter 7 bankruptcy and wipe out the entire amount and start over debt-free. To settle a debt, you must contribute 50% of what is owed to give to the debt settlement company. Depending on the amount of debt owed, it might be a better idea to hire a bankruptcy attorney and file for bankruptcy. The disadvantage of debt settlement is that it requires a lot of money and time. During this time, the individual paying off the debts is at the mercy of his creditors. When someone goes into a debt settlement company, they will usually stop paying all of their bills and pay the money back to the settlement company. The company will try to accumulate enough money in an account to offer liquidation to creditors. Hopefully, the creditors will be patient and not pursue the lawsuit against the individual. The bankruptcy declaration has the power of an automatic stay and stops all collection activity against the debtor. Creditors can no longer even contact the individual. The reason many choose not to file for bankruptcy is that they have the idea that creditors look highly upon people who try to pay off at least a portion of their debt. As for that, I think all of that is a made-up idea.
