There was a time when the best way out of financial debt was filing for bankruptcy.
When a person files for bankruptcy there assets are auctioned.
The money generated by liquidating the assets is used to pay off the customer's debts to a maximum possible extent.
The remaining debt is then waived off.
This leaves the customer free from all obligations of debt.
However this is not as easy as it may sound.
Qualifying for filing bankruptcy is not so easy these days with the modifications made in the bankruptcy laws.
You will also need to go for credit counselling for the next six months from a government approved expert.
Once the bankruptcy is filed it will only be a temporary relief as it will affect your credit score adversely.
With this credit score getting a loan in the near future will be very difficult so it would mean living on cash.
Considering these side effects of bankruptcy, debt settlement would make more sense.
This is a legal way for consumers to eliminate their debts.
The bailout money which had been given to large financial institutions has encouraged credit card companies to negotiate with customers who are finding it hard to make payments.
Debt settlement is a comp0letely legal way of settling debt accounts.
A customer needs to convince the credit card company that they are unable to make payments on their debt account with the current financial conditions.
A successful negotiation between the creditor and debtor can win a customer as much as 50 percent of debt eliminated.
Many take the help of professional debt settlement companies in order to come up with the best deal.
Some debt settlement agencies can get you a relief of up to 60 percent on the total outstanding debt.
The remaining 40 percent can be paid back through instalments or can be paid in lump sum as per the terms agreed on.