Most Wisconsin residents, who have credit cards understand that debt relief is difficult without a plan that limits card use and pays them off as fast as possible. When the debt is massive, however, the prospects of paying it off may seem nearly impossible. Most credit counselors will advise that debtors work with debt-settlement companies, directly negotiate with creditors or work with credit counselors. Filing for bankruptcy is often portrayed as the choice of last resort.

So what are the benefits of debt settlement? A for-profit debt-settlement company usually negotiates with creditors and encourages a debtor to pay monthly amounts into an account that is eventually used to pay a lump settlement that is usually less than the full amount the debtor owes. Single monthly payments can make it easier to budget. The risks are that a debtor may have to pay for as long as 3 years without paying the final debt off, and there are no guarantees the debt-settlement company will be able to negotiate an agreement with creditors. This could result in financial disaster.

What other methods are available to debtors? First, they can speak with creditors directly and offer a settlement themselves. In most cases this will not work, but there is no harm in trying. Second, they can work with a credit counselor to learn to manage money and debts. Many organizations offer free workshops and materials, and some counselors have expertise in debt management and budgeting.

What about bankruptcy? Whether bankruptcy works depends on the case. In some, it makes total sense. Chapter 13 is a good option for debtors with steady income; it can save their property and assets that could be lost under Chapter 7. Before opting for any debt-settlement option, it is best to seek advice from an attorney experienced with debt-relief cases.

Source: Consumer.FTC.gov, “Settling Credit Card Debt,” Nov. 2012