Mounting debt is a frightening situation to deal with. Situations beyond our control such as sudden medical expenses or a loss of income can cause debt to spiral out of control. Desperate borrowers may think their only way out is bankruptcy, but another option is consumer debt settlement.

The Problems with Bankruptcy

Chapter 7 bankruptcy, also called liquidation, means most of the assets of the borrower are sold off to pay as much of the existing debt as possible. Once the borrower's assets are gone, the remaining debt is forgiven and the borrower can start from scratch.

The most obvious negative effect of bankruptcy is the damage to the borrower's credit rating. The bankruptcy appears on the credit report for up to 10 years. The bankruptcy filing is a legal action which becomes part of the public record forever.

Borrowers must often give up control of their assets or finances to court-appointed trustees. For some the embarrassment of losing control of their financial futures is worse than the credit hit.

Consumer Debt Settlement

Lenders are willing to negotiate with borrowers and forgive much of the debt without the impact of a formal bankruptcy procedure. A lender would rather collect some of a debt than have it all wiped away by bankruptcy. Negotiating with a lender to reduce a debt is a process called consumer debt settlement.

Typically lenders will reduce a debt by 50% or more. The actual amount of reduction depends on a number of factors such as the lender's history, the borrower's financial situation and the negotiating tactics used. Two borrowers may get different deals in similar situations.

Consumer debt settlement when combined with credit counseling allows a borrower get runaway financial problems under control without the stigma associated with bankruptcy.

Hire a Professional Negotiator

Although it is possible for borrowers to negotiate their own consumer debt settlement, it is seldom a good idea. Most borrowers don't have the skill or experience to be strong negotiators. They don't have the industry knowledge to understand which borrowers will make a deal and which won't.

The best results are achieved when consumers use organizations with experience in debt settlement programs. These establishments understand the negotiation process and won't be intimidated by the tactics borrowers use. When a professional represents you, it changes the dynamic. Lenders treat consumer debt settlement professionals with more respect than they treat consumers and that leads to better deals in the end.

Whatever you choose to do, do something. The worst option for debt problems is ignore them. Take action to get control over your finances whether that action is cutting back on expenses to make debt payments, negotiating a debt settlement, or filing for personal bankruptcy. Once your debt problem is solved you can move on with the rest of your life.

Proper Fees for a Negotiator

When selecting a negotiator most settlement companies are most interested in getting lots of your money and as much money as possible upfront.  Beware of these type companies.  The best way to pay for professional negotiations is to pay a percentage of what they can save you as a result of the settlement.  This provides incentive to get you the very best settlement.

Secondly, look at the setup fee (sometimes called the program fee).  This fee should not be more than $500.  Many of the agencies that advertise on television and radio with slick commercials need to collect thousands of dollars from you upfront to pay for the advertising.  We have seen fees as a percentage of the total debt which is a very misleading way to calculate the fee. This method leaves you with the impression that the fees aren’t really that bad.  We have seen these program fees well over $3,000 in numerous cases.  Your monthly payment has to pay these fees before you can even start saving up funds to pay for your first settlement.