Debt settlement or debt management – which is right for you?

January 14th, 2010 |

In present economic conditions, most often we hear from many people about debt problems. Due to increase in unemployment rate and cost of living many are unable to meet their living expenses and as a result incurred huge debt. If you’re monthly payments is becoming burden or out of control and getting threatening calls from collection agencies then put a step forward and work a way out of crisis. This can be achieved either by reducing the amount you owe or by restructuring monthly payments that means debt settlement or debt management.

Here is how the debt management and debt settlement works for you:

Debt management is offered by credit counselling agencies when you need more than simple budgeting calculations to pay of your bills. In this process the debt counselling company negotiates with your creditors to restructure your debt like lowering rate of interest, reducing monthly payments in a way affordable to you. However the debt management covers only unsecured debt like credit card debt, medical bills, student loans etc.

In debt management process, the debt counselling representative will analyse your financial situation to evaluate your current financial situation like interest rate on your bills, amount you owe in total and minimum payment on each account and negotiate with creditors to lower interest rates and monthly payments. After analysing, they will prepare a suitable repayment plan with your creditors such that you can pay back outstanding amount conveniently. At the same time you can get rid of paying to multiple creditors as you make a single payment to Debt Management Company.

Debt settlement: it is a process where debt settlement company representative will negotiates with your creditors to get your debt reduced mostly around 50 percent of the amount you owe for which those companies charge you an upfront fee. Mostly unsecured debt like credit card debt, medical bills, personal loans, utility bills can be settled but debt like mortgages, car loans, federally insured student loans are not covered in debt settlement program.

Debt management is best choice if you are in any of the below mentioned situations:

Having multiple bills that you are unable to manage them by yourself effectively.
Getting calls from collection agencies and want to stop getting them.
Tried out with self repayment plan and that wasn’t successful in clearing debt.
Want to lower interest rate on the amount you owe.
Want to reduce you monthly payments to the amount affordable according to your present income.
Affected with present economic crisis and want to get rid of bills.

Debt settlement must be a last option before filling bankruptcy as it may affect you credit score with defaults you make to allow the lender settle your debt. It usually takes 2 to 4 years to clear debt under debt settlement program and also depends on the total debt amount.

Articles on this site have been acquired from a variety of sources. No content on this site should be considered financial or legal advice.

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