Debt Management vs Debt Settlement Pros Cons

Debt Management

Pros

• Debt management programs offer structured principle repayment plans that enable you to repay debt faster than you might be able to on your own, thanks to benefits such as lowered interest rates and waived fees.
• You save time and money, and generally your credit rating may improve during the course of your program with regular and on-time program payments.
• You no longer need to send regular payments to each of your creditors listed on the debt management program. You just send one monthly payment to your debt management provider and they send your payments to your listed program creditors on your behalf. The debt management provider also sends you a monthly statement showing debt management account activity and balances, so you can monitor your progress.

Cons

• A debt management program won't work if you can't make regular monthly payments. Once you miss or make late payments, your creditors will remove you from the program. This eliminates any benefits you've been granted, and you're back in the same negative situation.
• Some people simply have too much debt to benefit from a debt management program. These programs are designed to offer affordable monthly payment schedules that last no more than 60 months (5 years). You may have so much debt that even with reduced interest rates and fees, you can't afford to repay your total debt within that timeframe.
• While many providers are nonprofit, some agencies charge high fees and may not disclose that your full monthly payment is not applied to the repayment of your debt. Using a nonprofit provider can help you avoid paying unnecessary fees.

Debt Settlement

Pros

• Debt settlement will have a negative impact on your credit score, but the impact may not be as great as if you filed for bankruptcy.
• It can be a cost-effective method of resolving debt, since you are not required to pay the total principle amount of your debt.
• Debt settlement may help you avoid asset liquidation through bankruptcy.

Cons

• Usually, your accounts must be at least 3 to 4 months delinquent or creditors won't negotiate.
• You'll have to pay taxes on forgiven debt.
• Third-party providers can charge high fees.
• Creditors are not obligated to offer debt settlement agreements-it is at their own discretion.
• Debt settlement is a gamble. If your creditors refuse to settle, you'll be in an even worse financial situation.