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Debt Settlement

Debt management and debt settlement are two very different repayment options. A debt management plan provides regular monthly payments to your creditors. In contrast, a debt settlement program often encourages you to stop sending payments to creditors, which can result in serious consequences. The risks associated with debt settlement programs are important to understand. Below is a summary of things you should consider before choosing debt settlement as an option.

Debt Management

Debt Settlement

Education
Education
Financial education is the foundation
No education
Payments
Payments
Make one regular monthly payment, based on your budget, that is disbursed to all your creditors.
Stop credit payments and deposit payments in a savings account for up to 36 months before debts are settled
Interest Rates & Fees
Interest Rates & Fees
Plan works with creditors on your behalf to obtain lower interest rates and fees
No reduction of interest rates, late fees or penalties, which are added to your debt
Cancellation
Cancellation
Can cancel without penalty, but you would still owe creditors any remaining balances
Typically large penalty to cancel agreement and would still owe your creditors remaining balances
Credit Score
Credit Score
Seeking credit counseling assistance should not hurt your FICO® score
Past due accounts and less than full repayment are likely to have a very negative effect on your FICO® score
Management Fees
Management Fees
Modest fee to manage payments
Fees are at least 15% of your debt and could be much higher
Collection Calls
Collection Calls
End of collection calls
Collection calls typically continue
Tax Charges
Tax Charges
Tax charges should not apply
You may be required to pay taxes on settled debt
Monthly Payments
Monthly Payments
Your monthly payment is disbursed to your creditors each month
Creditors may begin collections or file a lawsuit against you if they are not being paid

Even with the best debt settlement companies, costs are often higher than debt management. With debt settlement you can expect:

  • Higher fees
  • Additional tax implications
  • Credit rating will likely be negatively affected
  • No financial education to help you stay out of debt

With a nonprofit like Take Charge America, the fees are modest, and you will receive support as you learn to regain control of your finances and build a strong financial future.

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