Which is Cheaper: Credit Counseling, Debt Settlement, or Bankruptcy?

How can you determine what debt relief option is the right fit for a given set of cash flow limitations. The 3 options that people typically seek outside assistance with are Debt Management Plans (DMP), Debt Settlement Programs, and Bankruptcy. There are benefits and drawbacks to each option. Companies and people selling you a specific brand of debt help can often be found to over emphasize program benefits and gloss over drawbacks.

Overhyping and/or downplaying either the limited or major impacts to your credit score is a good example of how sales people, counselors and experts attempt to focus your attention on the particular brand of relief they provide. More details about credit impacts and debt relief options can be learned here.

The reality of a person’s debt situation should first focus on each individual’s financial capabilities. Compare the dollar benefit of a DMP vs. Debt Settlement vs. Chapter 7 Bankruptcy. The cost differences between each solution are stark.

Assuming a person has $20,000.00 here is how the dollars look for each solution:

Debt Management Plan:

Based on a monthly payment calculation of 2.25% of your enrolled credit card (and other conforming debt) balances, you would pay $450.00 for 60 months for a total of $27,000.00.

Debt Settlement Program:

Based on negotiating the debts down to less than half of what was originally owed, and assuming fair and affordable fees for the service, you may pay $10,000.00 over a recommended 24 month period.

Chapter 7 Bankruptcy:

Based on a straight chapter 7 bankruptcy filing where there are little to no nonexempt assets to contend with, you could pay as little as $1500.00 to $2000.00. Your filing and discharge of unmanageable debts is typically completed in less than 6 months.

Which option looks the most appealing and provides the best economic benefit from a strict dollars and sense perspective?

This dollar/time/relief outline is not generally discussed by the people and companies offering you a DMP or settlement plan. It by all means should be – but instead you might here how bankruptcy ruins your credit for 10 years (not true), or how settlement will get you sued and kill your credit for 7 years (also not true if you are a suitable candidate). If you did not click the above link that discusses the credit impacts of debt relief, you should read that next.

See also  I'm Current on My Credit Cards But Want to Consolidate Them. - Laurie

There are certainly other things to consider for each person when making an informed decision about your debt and your financial future, but the bottom line is where you need to start. Do the math and focus your attention on that first. Don’t rely on others to inform you using carefully scripted words and phrases that hit your emotions and barely scratch the surface of assisting you in becoming truly informed.

If you would like to contribute a guest post, click here.

Leave a Comment