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 or more before debts are settled.
Interest Rates & Fees
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
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
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
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
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 debt that is forgiven
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
  • 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.

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