If you are struggling with debt, you may be researching what options are available to get out. Two options that might sound similar at first are . Be careful, however, because these two are very different.
Though both debt settlement and debt management are used to eliminate debt, they are used in different situations. Debt settlement is primarily for those who have debt in collection agencies. The person who is going through debt settlement negotiates with the collectors to only pay usually 40-60% of the owed debt.
On the other hand, is for those who still have their debt with the original creditors. Instead of simply paying a fraction of the debt owed, the person on a debt management plan pays the balances in full. This avoids paying the taxes on forgiven debt that the person doing debt settlement does as well as the negative item on the credit report that a debt settlement leaves.
In fact, debt management can improve your credit as you demonstrate the will and means to pay back what you have borrowed. Another benefit to you is that you are able to save on interest on those accounts when you go through the plan. These savings will be dramatic enough to allow you to pay off your debt and not just interest with your monthly payments.
Not only can debt settlement hurt your credit and penalize you with taxes, you have to pay the agreed to amount up front. If you have struggled with your bills, this is probably not possible. Debt settlement companies offer to take care of this problem for you by collecting your money on a monthly basis. However, the debt is not considered settled until the payment is made, and in the meantime you are paying hefty fees to the debt settlement company and are earning no interest on the money they are holding for you.
If your debts are mounting but your accounts have not yet reached collections, now is the time to act. Before things get really bad is when a can be the most benefit to you. This will keep you from having to struggle with collection agencies in the first place.
