Why It’s Better to Do Debt Management Over Debt Settlement | CCCS of Rochester
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Why It’s Better to Do Debt Management Over Debt Settlement

Like many people, if you’re struggling with debt, you might struggle to decide how to get out of it. Two options to consider are a debt management plan (DMP) or debt settlement. However, debt settlement is risky, and you’re more likely to pay off your debt without damaging your credit score with a debt management plan. 

Debt Settlement vs. Debt Management

Wondering which one will work best for you? Here’s why a debt management plan is the safer option for your financial well-being:

Debt Settlement

While debt settlement can help you save money by allowing you to pay off your debts for less than you owe, it’s not quite that simple. Debt settlement companies are for-profit, third-party companies that charge 15%–20% of your settled debt. Their tactics include advising you to stop making payments on your current loans while they discuss settlement with your lenders. These organizations work on the theory that credit companies will allow you to make a smaller amount since some money is better than none.

However, when you stop making payments, your account will become delinquent, earning you late fees and penalties. In addition to hurting your credit score, late payments can stay on your credit report for up to seven years. There’s also no guarantee your lenders will agree to settle, resulting in a greater negative impact on your finances. They may also decide to sue you, which can result in your wages being garnished. 

Ultimately, a debt settlement company may be the best option for you only if you can’t pay off the totality of your debt and aren’t worried about your credit score taking a hit.

Debt Management

Much like debt settlement, a debt management plan is designed to help you pay off unsecured debt, like credit cards, personal loans, and medical bills. However, you will typically enroll in a DMP through a nonprofit credit counseling agency, which is under obligation to promote financial responsibility through free education and counseling services. While debt settlement companies charge high fees, DMPs usually cost a small fee between $40–$75 to cover the cost of managing your program. 

When you are enrolled in a DMP, a credit counselor will work with your lenders to consolidate your credit cards into one affordable monthly payment (often reduced by 30%–50% of the monthly payment) that is designed to be paid off in three to five years. The downside of a DMP is you won’t be able to open new credit cards while on the plan, but you’ll be able to pay off your debt while maintaining or boosting your credit score.


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