Debt management and debt settlement are two distinct approaches to tackling financial obligations and relieving the burden of debt. Debt management involves the structured and responsible handling of one’s debts with the help of a credit counseling agency. It typically includes the creation of a debt management plan (DMP) to negotiate lower interest rates and establish a manageable repayment schedule. On the other hand, debt settlement, often pursued by those facing significant financial hardship, focuses on negotiating with creditors to settle a debt for less than the full amount owed. While debt management seeks to make debt more manageable, debt settlement aims to reduce the total debt load.
Paid-in-full vs settled-in-full
The big difference between debt management and debt settlement is about how much of your debt you actually pay. In debt management, you pay back the whole amount you borrowed, every single dollar. In debt settlement, you only pay a part of what you owe. You settle on a smaller amount, and the creditor forgives the rest. This can be a huge relief if you owe so much that thinking about paying it all back feels impossible.
Minimizing rates vs rates are irrelevant
In a debt management program, they talk to the people you owe money to and ask them to stop adding extra fees and interest on your debt. They usually say yes, and it helps you get out of debt faster, even if you pay less each month. But you might still pay some interest charges in the end. With debt settlement, the interest rates don’t matter because you’re only paying a part of what you owe, and they forget about the rest.
Faster payoff vs fastest payoff
Both debt relief programs help you get rid of debt faster than traditional methods, but they have different speeds. In a debt management program, it usually takes 3 to 5 years (around 36 to 60 payments) to become debt-free. Debt settlement is even quicker, with an average completion time of 1 to 4 years (12 to 48 months). If you stick to the old way and make just minimum payments, it will take you a really, really long time to pay off significant credit card debt—like 24 to 28 years for a $10,000 debt at an 18% interest rate, depending on your minimum payment. So, when it comes to speed, debt management is faster than traditional methods, but debt settlement is even faster. The only thing faster than debt settlement is Chapter 7 bankruptcy, which can be done in 6 months to a year. But if you want to get rid of debt as quickly as possible without going bankrupt, debt settlement is the way to go.
Cheaper vs cheapest
Both programs can save you money compared to regular monthly payments, but when it comes to getting the most savings, debt settlement is usually the best choice.
With debt settlement, you typically end up paying less than what you originally owed. It’s the cheaper way to break free from debt.Debt management programs make you pay back the full amount you borrowed.
When is debt management the best debt relief option?
Debt management is the best choice when you have a fair or better credit score and most of your debts are still with the original creditors. This is also the best option when you feel committed to paying everything back. Keep in mind that it takes more time, work and money to complete the program versus settlement.
When is debt settlement the best debt relief option?
Debt settlement programs are for people who want out of debt as quickly as possible for the least amount of money. It’s usually the best choice when your credit score is already bad and can also be the best choice if most of your debts are already in collections.
Explore the Pros and Cons of Debt Settlement
Considering Debt Settlement?
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