If you are struggling with debt you may be wondering: what’s the difference between debt settlement and debt management to pay off debt? On the surface they may seem similar, but in reality,they’re very different.
There are a lot of options out there when looking for debt relief. Debt settlement, debt management plans, handling it on your own, and bankruptcy are all different options with advantages and disadvantages for each unique financial situation. We’ll help explain the difference between debt settlement and debt management -- two options you may be exploring.
A Debt Management Plan (DMP) is a program designed to help pay off unsecured debts with the help of a non-profit credit counseling agency. Examples of unsecured debts covered in a DMP include:
On a DMP, your enrolled unsecured debts are consolidated into one monthly payment made to the credit counseling agency who then pays each of your creditors on your behalf.
Enrolling in a DMP with a credit counseling agency can help you gain control of your finances without incurring more debt. The benefits of a DMP may include:
A Debt Management Plan may be right for you if:
With Debt Settlement, you withhold payments to your creditor(s) until your account is significantly delinquent (usually more than 90 days) and then ask the creditor to accept a smaller amount instead of the full payment. It’s not uncommon for a creditor to accept a lesser payment since they may not get any payment from a delinquent account.
While that might sound appealing, debt settlement has several downsides:
You can attempt to settle your debts on your own, or you can hire a debt settlement company, which comes with further risk. Many Debt Settlement companies have been accused of taking fees from consumers and providing little benefit.
Debt Settlement could be right for you if:
When you’re looking for a solution for your debt, it’s important to understand the difference between debt settlement and debt management so you can make the solution that is healthiest for your financial future.
If you are experiencing financial difficulty and are looking for a solution, non-profit credit counseling can help you make sense of all your options. Contact us today for a free financial assessment with one of our certified credit counselors.
Consumer Education Services, Inc. empowers people to overcome their financial challenges and lead financially-healthy lives.
CESI is NOT A LOAN COMPANY