Debt Settlement vs Debt Management | CCCS of Rochester
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Debt Settlement vs Debt Management

Debt is a growing concern for many. Credit card debt with high interest rates especially can be difficult to manage and pay down. When searching for solutions on the best way to pay off debt, there is a lot of conflicting advice. Two options that come up; Debt Settlement and Debt Management may sound similar but work quite differently.

Debt Settlements at first may seem like an option that will save you the most money. Debt settlement companies work to negotiate lower payments and try to settle for less than your full balance on your credit cards, however most companies charge expensive fees for this service. The lower payments may seem attractive at first, but these companies will not be sending these payments to your creditors and instead they will hold onto these payments until they are ready to settle. During this time, you can receive negative credit reporting for missed payments and collection calls. There can be tax implications involved with debt settlement. According to the NFCC, forgiven debt is considered taxable if over $600. Not all creditors will work with a debt settlement company, which could lead to your creditors trying to sue you to try to collect on the debt.

Debt management programs (DMPs) are available through credit counseling agencies. The credit counselor will go over a budget and discuss options with you. With a DMP the credit counseling agency works with your creditors to reduce your interest rates and/or lower monthly payments. You’ll be paying back the full amount you owe, so your credit score will not be impacted the way it will with debt settlement. Many creditors will close out your credit cards, but as you pay down your balances overtime your credit score will improve.

With either option, it is best do your research before deciding on how to move forward. Check out reviews online and on the Better Business Bureau. Choose a company that understands your situation and isn’t trying to make a profit off your debt. You can find a certified credit counseling agency in your area by reaching out to the NFCC (