Which is better- Credit Counseling or Debt Settlement for $34,000 U.S. of Credit Card Debt?
I know someone who has approximately $34,000 U.S. of credit card debt.
This person is considering Credit Counseling or Debt Settlement, in
order to get out of this amount of debt. What are the
advantages/disadvantages of both Credit Counseling or Debt Settlement?
Given this aforementioned financial situation, what would be the best
strategy to handle this debt? Any kind, sincere, and honest (but NOT
critical) advice regarding this subject will be greatly appreciated.
-
Sorry, critical advice is what you'll get from me.
Why is the "solution" so often to try and get out of paying the
debt, or two haggle and reduce the legitimate debt, rather than
to buckle down, get a second or third job for a few years, and
pay the damned things off as per the agreements with the
creditors?
Why is this option never considered?
- Income: approximately $65K U.S. per year; Assets: minimal, renter, no
IRA, minimal savings (which are currently depleted); Current Expenses:
approximately $3,200/month (of which approximately $900 is going to
credit card payments). The person is aware of the short-term damage to
credit rating and sees the option of debt settlement as "short-term
pain for "long-term" gain). What course of action would you recommend,
credit counseling or debt settlement; any further advice?
- Those expenses sound rather high for a person who is eye
deep in debt. Do they have a budget? An apartment should
only cost $600 a month or so, or split a $1200 apartment
between 2 people. Where does the other $1800 a month go?
Perhaps this person needs to go on a spending diet. Drop
the cable TV, eat out less, use some coupons, don't order
pizza, do some reading rather than renting movies, etc.
It should be easy to pull another $450 out of these expenses
and increase the payback by 50%.
- The interest rate of the debts vary anywhere from 7% to 29.99%.
Approximately $9,000 U.S. of the debt is at 29.99%, the remaining
anywhere from 7% to 19.99%. From what I understand, debt settlement
can reduce the overall principal of the debt significantly through
negotiation by the debt settlement company (by amounts such as 30%-50%
on the dollar). However, (from what I understand) there is a catch- in
the short term, one's credit rating will be harmed, as the balances
from the creditors are being negotiated, which can cause the bills to
be delinquent. But in the long run, one's credit rating will improve,
as one gets out of debt through the 2-3 year payment plan. After the
payment plan, the credit reporting bureaus will report that these
settled debts were paid as agreed (rather than paid in full). Is this
logic correct? Is there anything missing in the picture that I had
just described, that I may have overlooked? Will this be a wise manner
to handle this debt? I want to make sure that I give my friend the
best advice possible. Any additional advice will also greatly be
appreciated.