What is debt settlement and is it better than bankruptcy?

It depends. What are the settlement terms? For how long? Can you afford it? Sometimes it makes more sense to file and get it over with, so you can start rebuilding your credit.

Debt settlement is an alternative to filing bankruptcy. If you have the means to "settle" the amount owed, then by all means you should attempt to do that. Most companies will report the debt as "Settled for less than amount owed." This is less damaging to your credit than filing a bankruptcy. Take precautions if you are considering using a debt settlement agency. You can attempt to settle the debt with the credit card companies first. Paying a company a high fee to do something you can do yourself does not always make sense. Do your homework before engaging a company.

Many, perhaps most, debt settlement offers on the Internet are con artists - you'll give them money and they will steal it. Any firm that wants money upfront is a ripoff. There are legit debt settlement firms get a referral from a friend and check them out through the Better Business Bureau ( actually check with the local BBB, don't trust their website and your state attorney general). Unfortunately, they require very high payments for several years and most people can't make them. Talk to a bankruptcy attorney before entering a deal with a debt settlement firm and compare the two.

I have a low opinion of debt settlement as it is undefinable until the settlement is reached if at all. It should be done by an attorney. Bankruptcy is faster, easier and more certain of dealing with your debt.

It really depends on the circumstances as to which option will work better. Get a consult and go over the details and the options, consequences and expectations of each option so that you can make an informed choice. If you have no funds to offer as a settlement and no means to get some it's a bit pointless to talk much about settlement. I'm frequently asked about debt settlement and when I ask the person can you come up with even 30% of the total amount you owe, if the answer is all I have is $20 in the bank account and don't have any assets I could sell to get some money or a friend/family member willing to gift or lend me anything then I have to say that settlement is not possible. If there is some funds, then the question is if all creditors are willing to play along and what % they are willing to take. The only way to find out is to make the offers and start negotiating. Settlement involves paying some % of what is owed. Generally speaking 60% is very doable, anything below that it depends on the creditor and the borrower actually because someone who has a job and lives in a home they own is someone from whom it's easier to extract money through involuntary means (garnishments, levy, liens) after getting a judgment. Whereas someone who rarely holds a job, rents, and drives a beater or owns no car - it's very hard to collect from that person. A smart creditor studies the situation of the borrower in determining what is a reasonable amount for them to take. There is also credit consolidation, which is helpful to some, but again without knowing the details (the devil is in the details): your income, household size and reasonable and necessary living expenses, your assets, specifically how much is "too much" credit card debt and specifically what is the "less income" it's hard to figure out anything. You can see for example if someone has $20K in credit card debt but has income of $80K/year, which was reduced from $150K, a significant adjustment to their previous lifestyle, may still be able to tighten up their belt and come up with a payment plan whereas someone with same amount of debt but making $30K/year is basically living pay check to pay check without any disposable income available to offer any type of payment. Going back to the $80K in income, if that person is supporting a spouse and 4 children, then $80K isn't all that much and of course this also depends on where the borrower resides, certainly housing and other living costs vary from location to location. While you may be able to rent a 1 bedroom apartment for $800 in some places, in others you can't even get a studio for less than $1,400. So any particular number by itself means little. Sit down with a local attorney and go over the details. No point in procrastinating, I'm assuming the situation is not getting any better. Having too much debt is certainly not a pleasant experience and it would be nice if the problem just went away by itself but often that isn't the case and we have to take stock, make some decisions, and follow through.

Debt settlement can be a good choice for people who have money saved up to settle their debts or who have extra money in their budget that they can set aside to use to pay debts. Debt settlement can also be a good choice for those who have a small amount of debt (under $20K) or only a few creditors (say fewer than 5). Debt settlement can be worse on your credit than bankruptcy, and remember, when you settle a debt, you pay taxes on the amount you save. No tax consequences from bankruptcy.

It depends. Debt settlement works for some but a lot of people have bad results. Bankruptcy also has it's downfalls (mainly it hurts your credit). Many bankruptcy attorneys offer a free consultation. I would recommend speaking with one to find out your options.

By intuition, one would think that settling one's debts is better for one's credit than a bankruptcy. Experience says otherwise. In my experience most of the agencies which offer to serve as settlers cost more than a bankruptcy, and some are not reliable. Bankruptcy is sure, safe, relatively economical, and you can often overcome the adverse credit effects in 2 to 3 years.

Generally bk is more effective because it eliminates more debt without tax issues.