With the prominence that personal debt settlement has achieved over the past few years when it comes to helping individuals like you and I solve debt problems, you would think that it would be a suitable solution for just about everyone. But is it?
In a word, no.
Debt settlement is best described as a "niche" solution for debt relief. In other words, it is only a viable option for a small percentage of people who are suffering from debt problems.
The "simplified" answer to this question would be people who are facing bankruptcy, but who cannot qualify for Chapter 7 bankruptcy. (Under Chapter 7 bankruptcy all debts are forgiven, except IRS debts and student loan debts.) And if they cannot qualify for Chapter 7, then their other option would be Chapter 13 bankruptcy.
Chapter 13 bankruptcy is also referred to as the wage-earners bankruptcy. Unlike Chapter 7 bankruptcy, with Chapter 13 bankruptcy you do not have to liquidate all of your assets, but you do have to use your income (or wage if you will), to pay off all or part of what you owe your creditors. This "payment plan" usually lasts 3 to 5 years.
Personal debt settlement just may be a viable option for some people who are considering filing Chapter 13 bankruptcy. Avoiding bankruptcy is a high priority for many people, which makes debt settlement an even more attractive option. And not only does debt settlement allow these people to avoid bankruptcy, it allows them to become debt free in less time, (usually 36 months or less) and for less money (many times only for only 40% or less of their outstanding unsecured debts).
Of course everyone's situation is unique, and it is highly recommended that you seek the advice of a bankruptcy attorney before deciding on a course of action.
Most people who enroll in a debt settlement program have some form of income from which they accumulate funds to settle their debts. Having said that, if you do have an income, and hence a way of making monthly payments, then it is possible that there is a better solution than personal debt settlement... Debt Management.
Debt management involves working with a credit counselor in order to
devise a strategy to pay off your debts. Interest rates, penalties and
fees associated with your unsecured debts are usually reduced or
eliminated in order to allow you to pay down your debts faster. Unlike
debt settlement however, the overall amount the debts is not reduced.
But, also unlike debt settlement, your credit score and credit report
are not negatively affected (at least not nearly as much).
I agree, it can be very confusing. My best advice is to learn as much as you can about all of your options, and then speak with the professionals that offer the various debt relief services. A great place to start is to contact a credit counselor who will thoroughly analyze your financial position and make a recommendation as to the best debt freedom path for you. If your debt situation is very severe, then you may wish to contact a bankruptcy attorney and have them explain your options. That being said, it cannot hurt to first speak to a credit counselor and get some free advice from them.