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Managing Your Personal Finances: Choosing Between Debt Management and Debt Settlement

Posted by : Premraj | Posted on : Wednesday, March 4, 2015

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What are your options?

Now that you are in a considerable amount of debt, you need to figure out what your options are. Remember not to be a fatalist considering bankruptcy as your only option. Look around to see how else you can get out of the hole of debt you are in without doing too much damage to your credit score and financial future.

Make your choice

Among the many options for handling your debt are debt management and debt settlement. Both of them aim to reduce or eliminate your debt through lowering your payments, reducing your balances and having penalty charges removed. While they may look similar on the surface, how they go about reducing your debt is quite different. As a result, there are benefits and risks attached to either option, which I have outlined for you below.

Debt Management

Here you will get a program with a structured repayment plan that aims to help you clear you debt faster. The payment plan is developed following negotiations between the debt management company and your creditors to waive your penalty fees and lower your interest rates.

The advantage here is that your credit rating will improve courtesy of regular, timely payments made on your behalf by the company. Further, you won’t have to pay individual payments to all your creditors; just one monthly payment to the company and they will handle the creditors for you.

The challenge with that is if you can’t make the payments then this program won’t work for you. Late payments, or defaulting, lead to expulsion from the program. So this may not be a good idea if you are in too much debt.

Debt settlement

This works for people with some serious debt on their hands. Your accounts need to be unpaid for about 3 or 4 months before you are considered for debt settlement. You will not be required to pay the total principle amount; only a settlement amount determined through negotiations between your creditors and the settlement company.

While you may have a dent in your credit score, it certainly won’t be as bad as filing for bankruptcy and facing liquidation. However, you will still have to pay taxes on the debt that was forgiven and the company will charge you a lot for those services. Remember that the creditors are under no obligation to negotiate debt settlement with you, so if they refuse to settle, you could end up in bigger trouble than you were before.

It’s up to you

While both options have their cons, you need to choose which one works best for your specific financial situation. Remember that these services are not offered for free so you will need to consider service costs when determining which way to go.

Credibility is also crucial when choosing the best company for you. There are a lot of scammers out there with a ‘click here for debt relief’ sign, so you need to make sure they are legitimate before going into business with them.

Author Bio

Macdonald McGraven is a personal finance advisor who has also investigated various debt relief companies in the past. He is a financial blogger too so you can click here for debt settlement information from him.

Comments : 2 Comments | Category : Money Advice, Personal Finance, Planning, Saving Tips | Tags :

2 comments on “Managing Your Personal Finances: Choosing Between Debt Management and Debt Settlement

  1. Andy Brown on said:

    Good to read this article. I read this article carefully; this article provides two options of managing personal finances as debt management and debt settlement if we are in trouble because of debt. It has also information about things to be done during debt settlement. This article inform us be aware of debt settlement scams. Thanks for such awareness of fake debt settlement companies. Wonderful article on managing personal finances by choosing between debt management and debt settlement. You have chosen nice topic, I like this article and found some excellent information, Thank You!

  2. Sujain Thomas on said:

    It is not easy to choose between debt management and debt settlement. For that thorough knowledge about both the concept is required. And of course management is a different concept and settlement is a different concept. Everybody knows that management means to plan for something which is going to be executed in the future. And settlement means work according to the management plan to make it successful. Your article has clarified both the things neatly that is the reason it is helpful for people who are involved in personal finance by choosing one of the both options. Your article gives the feel of satisfaction. Nice article!!

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