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If you’re struggling to stay afloat and your debt is starting to pile up, it might be hard to see a way out. Debt settlement and debt management are two common options that people consider to help them tackle situations like this. Both options have their benefits and drawbacks. But if you’re looking for a quicker solution that will help you regain control over your debts while reducing the amount you owe, then debt settlement is probably going to be the better choice for you.

First, a bit about debt management. 

Debt management plans are an option offered by credit counseling agencies. Debt management plans typically group various payments, like credit card balances and personal loans, into one monthly payment so you can pay your debt off in a more organized and timely way. It will help guide you on a path toward paying off your debt over time.

How does debt management work?

Credit counselors offer debt management plans to help you pay unsecured debts such as credit cards and personal loans. Once you’re enrolled in the debt management plan, a credit counselor will contact each of your creditors to let them know about your enrollment and make themselves the payer on your account. You make one monthly payment to the counseling agency and they pass this money onto your creditors to pay off your outstanding balances.

What are the pros of debt management?

This type of plan could lower your overall interest rate and possibly help get you out of debt sooner than if you were to only make minimum monthly payments to each creditor. It can also help provide simplicity to your life as you go from making individual payments to each creditor to making a single payment to the credit counseling agency.

What are the cons of debt management?

One big hurdle to overcome with debt management plans is that they can be tough to qualify for. You typically need to have at least 15%-49% of your annual income in unsecured debt, and in exchange for a lower interest rate, demonstrate an ability to repay the amount owed. This type of plan also doesn’t change the actual amount that you owe creditors as your debts are not being reduced, but simply combined into a single payment through your counseling agency. 

How is debt settlement different?

Debt settlement allows you to “settle” outstanding debts for less than you owe by negotiating a reduced balance with creditors. While this is something you could try on your own, debt settlement companies have more experience and leverage negotiating with creditors, and will typically be able to make a bigger impact in the reduction of your debts. Reputable debt settlement companies could reduce the amount you’re required to pay back by up to half or more.

How does debt settlement work?

Debt settlement works by negotiating with your creditors to reduce the amount that you owe them. When working with a debt settlement company, they handle the negotiations for you, using their expertise to save you time and money. The company will keep working and negotiating until they’ve agreed upon a reduced settlement amount with the creditor. Debt settlement companies are able to negotiate successfully since they are often managing thousands of clients at once, which brings significant leverage to maximize client savings. 

What are the pros of debt settlement?

Debt settlement companies are able to reduce the total amount of debt that you owe and provide options for affordable monthly payments. By reducing the amount you’re required to pay back, this also means you’re typically out of debt quicker than with many other debt-relief options, like debt management.

What are the cons of debt settlement?

Like any debt relief tactic, there are risks to debt settlement. Debt settlement could initially have an adverse effect on your credit score but ultimately will see improvements as your debts are settled and resolved. Debt settlement also won’t be an instant fix to your debt problems but is typically quicker than other strategies for dealing with debt. Experienced debt settlement companies could help you resolve your debts in as little as 24–36 months.

What’s the difference between debt management and debt settlement?

When comparing debt management and debt settlement, it’s essential to look at the details to determine which strategy is right for you. Debt management might be the best option if you can afford to pay back the full amount you owe, while debt settlement is an excellent option if you can’t afford to pay back what you owe. Determining which form of debt relief is right for you depends on your situation so we recommend contacting a certified debt consultant before making any decisions.

How can CreditAssociates help?

CreditAssociates can provide a free consultation to help get you on the road to financial freedom. Our certified debt consultants will review your specific debt situation and provide you with a plan tailored to your needs and lifestyle. We could help you get out of debt in as little as 24–36 months.

Common Debt Management and Debt Settlement Questions: 

What about debt consolidation? How is it different from debt relief?

Debt relief is any activity that changes how your debt is structured. It can manifest itself in a few different ways, including debt consolidation, debt management, or debt settlement. Debt consolidation is when you take your debts to multiple creditors and consolidate them into a single payment, typically through a loan. 

Can creditors refuse a debt management plan?

Yes, creditors may refuse a debt management plan if it is not up to their company’s standards. This will depend on a case-by-case basis as to whether they will accept the proposal or not.

How do I rebuild my credit after debt settlement?

You could experience an initial negative impact to your credit score when using debt settlement. However, you will typically see positive results as your debts are settled and resolved.

Are debt management plans a good idea?

Debt management plans can be good if you can afford to pay back what you owe but just want some help coming up with a repayment plan. If you cannot afford to pay back what you owe, debt settlement might be a better option for you. You should always consult with an experienced debt consultant to determine the best course of action for your situation.

What happens if I stop paying on my debt management plan?

If you stop paying on your debt management plan, your account will be sent to collection and any lower interest rates you gained from the credit counseling agency will return to their previous levels. It will also have a negative impact on your credit score. If you cannot afford to pay back what you owe and are interested in options for affordable monthly payments, debt settlement might be a better and more effective option for you.