Collections, Debt Negotiation or Bankruptcy?

Hi..I have allot of credit card debt.  I am current on all of them, but it is getting harder to pay them every month.  I have contact a couple of the debt negotiators and they want me to sign up with them and stop paying on my cards for 3-4 months then they will start payment negotations with them.  I have uneasy feelings about that.  I was just wondering if bankruptcy is an answer or not paying them and let them go to collections and work out a lower payment plan with the collection agency.  I have tried working out a payment plan with my credit card companies and some helped for a short time and some wont help.  Any words of wisdom on this would be great…..Kim

ANSWER:

There are pros and cons for each option that you have mentioned; continue to struggle paying your credit card bills, debt negotiation and bankruptcy. I would definitely suggest paying your credit card bills as long as you are able to without sacrificing life’s necessities (like food and shelter, for instance).

Debt negotiation is an option that involves an agency that typically requires fees to set up an account with them and then they negotiate with your creditors for lower interest rates and payments. You pay the debt negotiator and they in turn pay the bills for you. There are some things with debt negotiation that you should be aware of though.

1. Not paying your bills and going through debt negotiation will still affect your credit rating negatively. Some will mention that it won’t deter your ability to get credit in the future, but after debt negotiation, it can be just as difficult as if you file bankruptcy.
2. There is no guarantee that the debt negotiation service can get you any lower rate or payment than if you did it yourself.
3. Fees are sometimes substantial for the services and can include upfront fees, monthly fees and sometimes fees at the end for the percentage of money that you were saved.
4. Debt negotiation does not stop creditors from being able to sue you, garnish your wages or placing a lien on your home.
5. If you are not able to pay your bills for 3 or 4 months, the creditor may be more willing to work out a payment plan with you anyway, which is why the negotiation agency asks you to stop paying your bills in the first place.

Bankruptcy on the other hand is most often viewed as a last resort because it does have a long term affect on your credit rating. A bankruptcy may stay on your credit report for 10 years, although some find that it isn’t any more difficult to get credit than when they were struggling to pay the cards off before the bankruptcy. Bankruptcy does create a form of protection from creditors and collection agencies and if you are unable to afford fees, you may be able to have them waived. Currently, the filing fee for Chapter 13 is $274 and Chapter 7 is $299. You may also be able to find an attorney that will file bankruptcy for you pro bono if you check with Legal Aid.

Look at all of your options and which seems the best for you now and in the future. As I mentioned originally, if you can continue to keep paying your credit card bills, you may want to rearrange your household budgeting, this is the most ideal option out of the three. Even if you make smaller payments but continue to pay, the creditor may be more willing later to work something out with you.