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Is debt settlement an alternative to bankruptcy?

At the end of last year, Americans carried nearly $11.63 trillion in personal debt. Sources indicate that the average amount of credit card debt is over $7,000. When the debt becomes overwhelming for New Jersey residents, several debt relief methods are available, such as debt settlement or bankruptcy.

For some people, debt settlement may be the appropriate remedy. Before making the decision, however, a consumer should take the time to weigh out whether it is actually a viable solution. Since the Federal Trade Commission (FTC) strengthened the rules imposed on debt relief services, it may be easier for consumers to locate a reputable service. Beyond that, the pros and cons of their use must be explored before any agreements are signed.

These companies negotiate with creditors to lower payments and interest rates on behalf of the consumer. Debts may be paid off within 48 months. If it works properly, the program could have little impact on an individual's credit score and report.

However, the services charge a fee, which could become costly. Further, additional interest and fees could add up during the negotiation process. Any missed payments could invalidate the agreement, and a creditor may take legal action. Therefore, it is important to weigh the downside of a debt settlement before moving forward.

In the end, pursuing a debt settlement plan may help some, but it will not help everyone. A New Jersey resident could end up in a worse position than when he or she began. When a bankruptcy is filed, collection activities -- including lawsuits -- are stopped. An individual will have the time and space to sort out his or her financial affairs, and when finalized, he or she could receive a fresh financial start.

Source:, "The pros and cons of debt settlement", Andrew Housser, Oct. 27, 2014

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