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Debt Settlement, Bankruptcy, and Other Debt Relief Options

Updated on November 24, 2008

Credit card debt can be an extremely stressful hardship to endure. Unexpected financial difficulties, such as job loss or medical bills, can further exasperate the problem; giving debtors a hopeless feeling they will never find debt relief. While it may seem hopeless, the reality is that debt relief can be found from a variety of sources. The least burdensome method is debt settlement.

Debt settlement is the process of enlisting a third party to negotiate with creditors for a reduction of the total balance owed. While debt settlement is not the only option, it does provide the greatest benefit for both the creditor and the debtor, which can be seen in a comparison of debt relief options.

The first option for getting out of debt is to simply make the minimum payments. This option is typically the first one that is considered by many people, and it is widely believed to be the easiest. In reality, attempting to get out of debt by making the minimum payments can actually be a debt relief treadmill to nowhere.

Unexpected financial hardships, such as excess medical bills, divorce, or job loss can make it extremely difficult for many to stay current on their payments. Even without these extra hardships, high interest rates can make it hard to quickly get out of debt following a strategy of simply paying the minimum payments.

According to Shane Boldin of Dallas-based, “We often tell our clients to go to CNN Money’s website, which has a calculator to help determine how long it will take for someone to get out of debt. The results typically show that it takes years, sometimes even decades, to escape the burden of credit card debt by simply making the minimum payments.”

A second option for debt relief is to consolidate all of the debt into a bank loan. This is a process known as debt consolidation. Debt consolidation is not a great choice for two reasons. The first reason is the difficulty of getting a loan. Given the current economy, many banks are reticent to loan money, even to people with a credit rating over 700. This reluctance often increases when the bank considers the amount of debt a person may have.

“People with a high amount of debt are even less likely to get approved for a loan,” said Shane Boldin, “For example, a person with a total unsecured debt over 30% of their yearly income will most likely not be approved for a loan.”

Secondly, debt consolidation does have an increased risk. Often, credit card debt and other debts are unsecured, meaning the debtor does not put up any collateral. However, when the debts are consolidated into one bank loan, collateral is usually required. This can mean that a debtor puts up their house as collateral for the loan, meaning that a debtor runs the risk of losing their home if they are unable to pay back the loan in time. It is better to keep unsecured debt simply that – unsecured – than to consolidate debt into secured debt, which carries this additional risk.

A third option that people choose for debt relief is a Consumer Credit Counseling Services (CCCS) program. People who are able to afford more than the minimum payments are ideal candidates for a CCCS program. Creditors control CCCS programs and determine both the minimum payments and the interest rates for program members. The major problem with any Consumer Credit Counseling Services program is that if a debtor is already failing to make minimum payments, or about to start failing on the minimum payments, they will not be able to escape the burden of debt in the program. What often happens is that a debtor will join a CCCS program, only to drop out later once they are unable to afford the payments.

A fourth option, which is the most unpopular choice for people seeking debt relief, is filing for bankruptcy. Bankruptcy can be a good option for people who are struggling to afford even the basic necessities of life. However, depending on the debtor’s state laws and annual income, some people are not allowed to file for bankruptcy. For those who are allowed to file for bankruptcy, a tremendous amount of paperwork is required. Additionally, it is often necessary to take bankruptcy courses and work closely with a financial advisor.

According to Shane Boldin, “There is a certain amount of risk in working with bankruptcy attorneys as some less reputable attorneys may end up increasing their fees as the process of filing continues.”

Ultimately, filing for bankruptcy is a highly involved process that can be extremely difficult.

The fifth and final option for people seeking debt relief is debt settlement. Debt settlement is basically a process in which a debt settlement company will negotiate with creditors to lower the total balance of debt owed. This will in turn lower the time necessary to get out of debt.

According to Shane Boldin, “Many creditors prefer debt settlement to bankruptcy for a very simple reason: when a person files for bankruptcy, his or her creditors get nothing. For this reason, many creditors would prefer to negotiate with debtors to ensure that they receive some payment. Something is better than nothing.”

In conclusion, while some debt relief options, such as bankruptcy, may be extremely time consuming and difficult, options such as debt settlement offer people the opportunity to escape the burden of credit card debt relatively quickly. Regardless, it is important for someone with a large amount of credit card debt to carefully weigh all options and make a responsible choice that will allow them to escape credit card debt without unnecessary costs in money or time.

Primary Source

We would like to offer our special thanks to Shane Boldin, owner of, who provided a great deal of information about the variety of debt relief options for people with credit card debt.


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      9 years ago

      If you are in debt already, don't be in such a hurry to get into more debt with these people that claim to have you debt free in 12-36 months or will negotiate with your creditors and get you out of debt. Negotiation with creditors is something that anyone can do.


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