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Debt Settlement vs. Debt Management

• How do you know which will work for you?
• What is Debt settlement and Debt Management? How do they work?
• When is the right time to opt for settlement and debt management plans?
• What are the effects on your credit score?
• Duration of Debt Settlement and Debt Management
• Do the creditor calls stop?
• Which option is best for you?

Are you stressed out and knee deep in debt? Do you want to get rid of your debts and save your credit report as well? Are your creditors getting on your nerves with threatening phone calls and letters? If you are struck in such a situation and looking for the available options this information might help.

Among the various ways of getting rid of debts, debt settlement and debt management are two of the best. Debt settlement reduces the amount of your debt, while debt management restructures them.

Both processes are often interlinked, and sometimes mistaken for the same process. However, this is not so. Though both debt management and debt settlement share certain common elements, still they have their individual importance as well. How? Read on.

How do you know which will work for you?

Which debt relief option is best for you, depends on your circumstances. Your financial state is the ultimate factor in deciding which program suits you.

If you are confused as to which program you should chose, start by analyzing your financial situation or get help from a debt relief company.

The company consultants will analyze your income, liabilities, debt payments, and provide you with solutions. Their professional take on things will help you to compare both programs and select the best debt relief option.

What is Debt settlement and Debt Management? How do they work?

Debt settlement is a smart way to reduce your outstanding debt balance by approximately 40-60%. Here, you or your debt settlement attorney negotiates with your creditors to reduce your debt and interest rates. With a debt settlement program you can easily get rid of your creditors, end all collection calls, and harassment notices without filing for bankruptcy.

Debt management plans are used to fix problems that cannot be solved with just credit counseling. With debt management, a counselor will negotiate with your creditors as well as give you advice on budgeting. By enrolling in a DMP you can reduce your interest rates, late fees, and penalties on your bills.

When is the right time to opt for settlement and debt management plans?

If you are having problems with lump sum debts, then debt settlement is the best option. If you have a stable income, then debt management can be right for you. With a Debt Management Program (DMP), a third party will take over the responsibility of reducing your interest rates, eliminating late fees, and penalty charges. If you are unable to make even the reduced monthly payments, debt settlement is the better choice.

Both programs can be equally beneficial if you can do it at the right time. If your debts are under control, DMP should be your focus, but if your debts are unmanageable, debt settlement is better.

What are the effects on your credit score?

In a DMP, the company or lawyer negotiates with your creditors to reduce your interest rates, fees, and penalties. You then make your monthly payments to the company, which distributes them among your creditors. With a debt management plan your FICO score is not affected. It is affected only when your lenders report your accounts as delinquent to the credit bureaus.

In a debt settlement program, your credit score is affected when you enroll. Once you start making regular payments under the plan, your credit score improves. At the end of the settlement process your debts are reported as ‘paid’ or ‘settled’ which helps improve your credit card report.

Duration of Debt Settlement and Debt Management

The time it takes for a Debt Management plan to complete varies. It typically takes from 36 to 60 months. How long it takes depends on how much you can pay toward your debts each month.

Debt Settlement requires an average duration of 6-9 months for credit card debt and nearly 1-3 years for other debts.

Do the creditor calls stop?

When you are enrolled in a DMP or debt settlement, the debt management/settlement company works with your creditors and calls and notices are handled by them on your behalf.

Which option is best for you?

It is difficult to decide which the best option until your financial situation has been analyzed. If your financial crisis is grave and you cannot afford to make even the minimum monthly payments on your debt, a DMP may not be the right option for you. Instead, you should try a debt settlement program.