Getting out of debt isn’t easy. That’s why there are programs designed to help you move forward. Not all programs are created equally, however, and knowing the difference between debt settlement and debt management is critical—so you can choose the one that’s right for you.
Most experts will agree that opting for a debt settlement program is a risky endeavor, particularly because it requires that you stop making monthly payments to your lenders. The ultimate goal is to negotiate a lower payout so that you end up paying less than you owe. While this may seem like an ideal result, you’ll ruin your credit during the process. Once your creditor agrees to the settlement, they will typically report that the debt is settled, but it will stay on your credit report for up to seven years, along with all the hits your credit took when you stopped making payments.
Other downsides? Debt settlement companies may charge costly fees (up to 15%–20% of your settled debt), your lenders may file a debt collection lawsuit against you, and you may end up in deeper debt than you began.
If you already have poor credit, this may seem like an attractive option. But keep in mind that your creditor doesn’t have to agree to a settlement.
While you won’t get the entire amount of money owed reduced like you would if you’re successful in a debt settlement program, a debt management program offers a more stable option. During the debt management process, a certified credit counselor will work with your lenders to combine your loans into a single, reduced monthly payment.
Debt management programs are designed so that you can pay off your debt in three to five years, allowing you to recover your credit score and start to save for your future.
In addition to debt repayment options, CCCS of Rochester can also educate you on ways to budget better and become more financially informed.