Posted on June 18, 2009 at 2:16 am Hi, everybody seems to think that bankruptcy is the worst possible choice when it comes to getting rid of debts, although I don't know much about bankruptcy, it does sound terrible! And then a friend suggested to consider debt relief and he had to go pick up something. I was like "what debt relief?!!!"

Posted on June 18, 2009 at 2:51 am Your friend was probably referring to debt relief programs (and companies) as an alternative to bankruptcy. Debt relief could be credit counseling, debt consolidation, or debt settlement. The advantages and disadvantages of enrolling in those programs depend on your particular need. You also have to beware of debt relief scams. If ever you are going to consider any of those, make sure you do your homework and check the Better Business Bureau or your local consumer protection office if the company you've chosen is legitimate.

Posted on June 18, 2009 at 3:28 am Credit counseling (not to be confused with the mandatory course in bankruptcy) is also known as a Debt Management Plan (DMP). It is a program that asks you to make monthly deposits to your credit counseling agency. This agency will be the one to pay your creditors. Some of the advantages are reduced or waived finance charges and a reduction of collection calls. Also upon completion of your payments, the agency can help you reestablish credit. The disadvantages are it takes approximately 36-60 months to pay down your debts (that's a long time) and it results in a high drop out rate.

Posted on June 18, 2009 at 3:38 am Another advantage of enrolling in a credit counseling program is its effect on your credit score. According to Fair Issac & Company (the creators of the FICO credit score) enrollment this kind of a  program does not have a direct effect on your credit score. What can damage your credit score is your history of late payments, missed payments, charge-offs, and bankruptcies. If a creditor has obtained a judgment filed against you, that also ruins your credit.

Posted on June 18, 2009 at 3:44 am I'm assuming that you can only enroll in a DMP if you haven't been sued yet...what if I've already received a notice from the creditor or collection agency that they are about to sue me or has already filed a suit..which of these debt relief programs can help me?

Posted on June 18, 2009 at 3:58 am I am not sure whether a debt settlement company can help with accounts that have already gone legal. You may want to consult an attorney with regards to that or fill out one of the forms that you see on this page to speak with a debt consultant.And creditors/collection agencies would only sue you if you fail to communicate with them properly. Meaning they really don't want to sue you because it is going to cost them some more. The idea of collection is to get their money back or at least some of it. Most likely they would rather you settle your debt with them and that's where the debt settlement as a debt relief option comes in.

Posted on June 18, 2009 at 4:15 am Speaking of debt settlement companies, one striking disadvantage of an enrollment to one is the damage it can do to your credit report. If you get accepted in a debt settlement program, you'd have to stop payment to the creditor, because your payment from then on has to go into the program. Debt settlement companies would negotiate with your creditors on your behalf (this is after your payment to them has satisfied their service fee and you have saved enough for negotiation) and they would target 40-70% of your total debt. If they are able to do that, you may consider it as an advantage. You'd be able to save money on a successful debt settlement program. Another advantage is that the program tend to be shorter than the other debt relief options, debt settlement usually takes 24-48 months to complete.

Posted on June 18, 2009 at 4:20 am Remember that the credit report reflects the missed payments--so if one of the requirements of debt settlements is for you to stop paying your creditors, imagine the damage that that can do to your credit report!However, because like pocketfulofsunshine has said, debt settlement programs tend to be shorter than the other debt relief programs, so that gives you a chance to repair your credit a lot faster too.

Posted on June 18, 2009 at 4:33 am I see..how about debt consolidation? What does it mean for your debts to be consolidated?

Posted on June 18, 2009 at 4:55 am Okay I just also learned this from these threads, debt consolidation combines all your debts into one debt. Its advantages are it frees you from tracking different payment dates, different interest rates, different creditors, etc. Debt consolidation enables you to pay a single interest at a much lower cost. It makes it possible for you to attack the principal amount that you owe instead of just paying down the interest each month.