A debt management plan vs debt settlement: choosing a way out of debt.
As you look for the fastest and easiest way out of debt, you’ll want to consider the benefits of a debt management plan vs debt settlement. Both approaches to debt relief may help you to reduce or eliminate your debt, but there are significant differences in a debt management plan vs debt settlement that can affect your financial future.
A debt management plan vs debt settlement: how do they work?
What is a debt settlement program? It’s a strategy where you’ll stop making payments to your creditors for a period of time – usually several months or longer. Then you’ll work with a debt settlement agency or US debt settlement service to offer to settle your debts with your creditors for some percentage of what you owe. Your creditors may be inclined to accept your offer if they believe it’s their best chance for recouping some of their losses.
What is a debt management plan? It’s a program where you’ll get help from a credit counseling agency to create a budget and a plan for paying down your debt over time – usually five years or less. Typically, you’ll make just one payment each month to the agency, which will make payments to your creditors on your behalf. The agency may also work with your creditors to seek to lower interest rates and to waive late fees and other charges.
Debt management plan vs debt settlement: pros and cons.
The biggest benefit of a debt settlement plan is the potential to get out of debt for a fraction of what you owe. The downside, however, is that you may owe taxes on any amount that is forgiven, as well as substantial fees to your debt settlement agency. And if your attempt to settle debt doesn’t work, you may end up with additional fines and legal fees that can increase the amount you owe.
Is debt settlement bad for your credit? Most definitely. Because debt settlement involves failing to make your monthly payments, you may end up ruining your credit and having difficulty applying for credit for years to come.
When you choose a debt management plan vs debt settlement, it’ll likely take a little longer to pay off your debts, but you’ll continue making payments to your creditors, helping to preserve your credit rating. You’ll also work with credit counselors to develop the habits and skills you’ll need to avoid debt in the future.
Getting advice on a debt management plan vs debt settlement.
As you work to decide whether a debt management plan vs debt settlement is the best option for you, it’s helpful to get advice from a financial professional. That’s where American Consumer Credit Counseling (ACCC) can help. As a nonprofit organization, we offer free credit counseling sessions where you can speak to a certified credit counselor and explore all your options for getting out of debt. You can also get answers to questions like, “What is debt settlement designed to do?” and “How bad does debt settlement hurt credit scores?” And whether you decide on a debt management plan vs debt settlement, we can direct you to social service referrals and to financial literacy materials that can help you master the skills to live a debt-free future.
Contact us today to learn more about a debt management plan vs debt settlement, or to enroll in a debt management program with service fees that are among the lowest in the nation.