I read all of the material on debt counciling, debt consolidation, debt settlement, and bankruptcy. There isn't one right answer for everyone. It really does depend on your specific financial situation and the circumstances that brought you to need debt relief.
My debt was credit cards. I had stopped using them and had been rigerously paying down the balances for five years. I was making progress, but it was slow. Then I was injured and I had trouble paying them at all.
Credit counciling didn't really make sense for me, since I had already brought my spending and savings in line with my income, and had been paying off my debt.
Debt consolidation would have put all of my debt into one payment, but that didn't really address the issues I was having.
Bankruptcy, in my state, for my situation meant paying back the creditors over a period of 5 years, no interest, but the full amount owed. Court appearances and two credit manditory credit counciling sessions provided by the state.
Debt settlement, meant getting out from under all of the debt, without bancruptcy, in less time. You can do this without any debt settlement company. If you are a good negotiator who can keep your personal feelings out of the conversation, than you should try to do it without help. If your like me, and not able to keep personal feelings out of the negotiation converations (and how can you really?), then a debt settlement company is the way to go. Other things to consider are settlement negotiation phone calls at work, at home, etc. If you do decide to settle it yourself, make sure you consider how and when you will make and receive these phone calls. You don't want to risk your job with these phone calls. And there can be a lot of them! Also keep in mind creditors don't always give the entire picture, in trying to collect the money they are owed. Collection agencies and collection law firms out and out lie to get the money. They will claim and threaten things they cannot do legally. A debt settlement negotiator has more experience with what is and isn't true, what banks charge-off at different time intervals, etc. Some even keep databases of creditors and what their previous settlement were to use for future clients.
I decided on Debt Settlement. I checked out several different settlement companies. Many claim things they can't do. Or make bold promises. Or flat out don't tell you things you need to know. For instance, you can get sued. You will likely owe taxes on the settled debt. Many of the companies hid their fees and cost structures. The one company who seemed to be upfront about all of these items was NEW ERA. Both on their website and on our initial phone converation, they made sure I was aware of possible consiquences in settling debt.
In the process of settling my debt, two accounts were handed over to law firms and I was sued. Both times were settled out of court with a settlement. In two more cases, the accounts were sold to collection agencies and they were both settled. Only two of my six original accounts were handled directly with the banking institution.
I had one account settled at 16%. Yes, that means I paid 16 cents on the dollar. Another account was settled at 70% (70 cents on the dollar). My overall settlement (total amount paid over total amount owed) was 39%. I saved 61%. Now, if you add in settlement company fees and taxes (fed, state, city), the real savings was 40%. If you are thinking about debt settlement, make sure you look at the tax code as it relates to insolvency. You may or may not owe the taxes.
Also, if you do have to pay the taxes, you may start owing them before you are finished with settlement. This can be another big bill over your head. Remember, the better the settlement, the bigger the tax bill.
Read your contract with a settlement company and make sure you understand what it.
When I first signed on with NEW ERA, I was still a little nervous. The contract outlined all of the fees and how to make payments towards a settlement. Right from the first settlement, I found NEW ERA to be upfront and honest about each settlement. They explained what my options were and how they could proceed. And sometimes what the consequences were. My negotiator was easy to talk to and answered my numerous questions. In three years, I settled a $63K debt. I now live debt free. NEW ERA did a GREAT job!
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