Debt relief offers aren't all equal. Is bankruptcy a good option?

There are big differences between debt consolidation and debt settlement programs. Certified financial planner @lizweston explains what you should know:

10/25/2021 10:40:00 PM

There are big differences between debt consolidation and debt settlement programs. Certified financial planner lizweston explains what you should know:

There are big differences between debt consolidation and debt settlement programs. Also, spousal vs. divorced spousal Social Security benefits. And Medicare.

now. Are there any differences in these programs? Some of these companies offer a program whereby high credit card balances and loans are combined and substantially reduced, and the debtor would make a single payment to said company. What are the pros and cons of this type of program? What would be the effect on the credit history of the debtor?

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Answer:If a company is promising to help reduce the total amount you owe, that’s known as debt settlement. Typically, you stop paying your debts and instead make payments to the debt settlement company, which tries to negotiate a deal with your creditors.

Debt settlement can have a substantial negative impact on your credit scores, and you may be sued by creditors that are unwilling to settle. The process can take several years and you may have to pay taxes on any amount of debt that is forgiven, because that’s considered taxable income to you. Once you add in the company’s fees, the amount you save through debt settlement may be less than you expect.

If you’re considering debt settlement, first consult with a bankruptcy attorney (theNational Assn. of Consumer Bankruptcy Attorneysoffers referrals), because bankruptcy is often a faster, cheaper and safer way to erase overwhelming debt. The most common type of bankruptcy, Chapter 7 liquidation, typically takes three or four months, stops collection actions, legally erases many types of debt and allows you to begin rebuilding your credit immediately.

AdvertisementIf a company is promising to lend you money to pay off your loans and credit cards in full, that’s known asdebt consolidation. Read more: Los Angeles Times »


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