Debt Help Programs, Debt Management vs. Debt Settlement, Lower credit card interest

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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

Financial education is the foundation

No education

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 or more before debts are settled.

Interest Rates & Fees

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

Can cancel without penalty, but you would still owe creditors any remaining balances

Cancellation fees can vary between companies. You would still owe creditors any remaining balances.

Credit Score

Seeking credit counseling assistance will not hurt your FICO® score

The debt settlement process will negatively affect your credit and you will need to rebuild it over time.

Fees

Fees are regulated by state law and are typically modest

Fees can vary but are typically 18 – 25% of the amount of debt you enroll in the program.

Collection Calls

End of collection calls

Collection calls typically continue.

Tax Charges

Tax charges should not apply.

You may be required to pay taxes on debt that is forgiven

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
Negative affect on credit rating
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.
If you would like assistance managing your debt, call 1-866-528-0588 to speak with one of our certified credit counselors, or take part in our online credit counseling process.