There are clear differences between debt management and debt settlement (debt relief), so it is imperative that you understand the exhaustive list of differences before deciding what is right for you.
Complete a short questionnaire to see which solution works best for you!
The question whether to pursue debt management or debt settlement is a common question for those looking for relief when debt becomes unmanageable. When you are unable to afford your minimum payments for one reason or another, these are two solutions that you may want to consider.
In this article, I define debt management and debt settlement, provide an overview of the process, and offer some pros and cons of each solution with the goal of helping you make the most informed decision.
Debt Management: The process is accompanied with credit counseling. A credit counselor helps you put together a debt management plan and will attempt to negotiate with your creditors for a lower monthly payment or lower total amount owed. Often, this results in you paying all of your debt amount, but you can save money from a reduced interest rate and reduced fees. These are often non-profit companies.
Debt Settlement: An individual or service working on an individual’s behalf to negotiate your debts by decreasing what is owed if you are unable to afford your debt. These are often for-profit companies.
Debt management companies such as ACCC and Greenpath work as an intermediary for those in debt and the creditor. The enrollee generally deposits money into an account managed by the debt management company, which is then used to fund the creditors over a specific period of time, generally between 3-5 years. This period is inflexible as the creditor generally sets a maximum time limit for the debt to be resolved. The debt management company will do the following for the enrollee:
Similary, debt settlement companies work as an intermediary for those in debt and the creditor. The debt settlement company will do the following for the enrolled participant:
Below is a list of debt management and debt settlement pros and cons with an estimated positive or negative weighting for each of the different options.
|Attribute||Debt Management||Debt Settlement|
|Damage to Credit Report||Low - Medium (If Remain Enrolled)||Medium (7 Years, No Bankruptcy)|
|Damage to Credit Score||Low (If Remain Enrolled)||Medium|
|Time||3-5 Years||2-4 Years|
|On Public Record||No||No|
|Taxes on unpaid debt||No||Potentially (>$600)|
|Program Fees||Low (Choose Non-Profit)||20-25% of Enrolled Debt (Ascend = 15%)|
|Debt Amount Paid||High||Low|
|Success Rate||Low to Medium||Low to Medium|
One of the most common alternatives to debt settlement and debt management is bankruptcy. We wrote an article to better explain this alternative and built a Chapter 13 calculator to understand the cost implications and view the pros and cons of each solution.
Debt Settlement vs. Bankruptcy: The two most common consumer bankruptcies are Chapter 7 and Chapter 13. There are many differences to both of these bankruptcies, but probably the most common is that Chapter 7 is much faster and wipes out your unsecured debt regardless of what you owe and a Chapter 13 is restructuring of your debt, which is similar to a debt settlement.
This depends on each situation and each individual. At Ascend, we would prefer to have a conversation with you beforehand to determine whether debt management or debt settlement is best for you. Once we have that information, we should be in a position to point you in the right direction.
Complete a short questionnaire to see which solution is best for you!