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Is Debt Management or Debt Settlement Better for Me?

Posted by in Debt
16
Jul 2018

Being in debt is an unpleasant experience for anyone. When your debt exceeds your ability to pay it off, it is certainly something to be concerned about. People are forever looking for easy ways to tackle such problems. Most people keep wondering about what solution is right for them and what isn’t. To know what is suitable for each individual, we must start by looking at what these terms actually mean and how they work.

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Let’s take a look at debt management and debt settlement solutions, and compare them.

What is Debt Management?

Debt Management refers to extending the time period of your debt by collaborating with unsecured creditors in an unofficial manner. Once you sign the agreement, you have to pay money in installments to the company in much smaller amounts for a longer interval of time.

Disadvantages

If you’re not sure about your ability to make regular payments, do not go for a debt management plan. If you make a late payment or skip it for a month, you will be disqualified immediately and could end up losing all your previous money and benefits.

This is an ideal solution for those who have small amounts repayable in the time frame of less than 60 months. However, if you owe a huge amount, this would hardly benefit you. Also, though there are non-profits in this field, most of the for-profit agencies charge a heavy fee for this provision. This eventually increases the total amount to be paid by a huge number. Therefore, it’s best to avoid private debt management companies and stick to non-profits.

Another demerit is that you will have to surrender all your credit cards and will not be able to use them until the debt repayment is over.

Advantages

Lower interest rates are often a part of these plans. By opting for this you may end up saving money and may even improve your credit score, thanks to regular payments. Moreover, you don’t need to send money to each of your creditors since one consolidated payment would do. The debt management agency will take care of who receives the money and how much of it. In the end, you reduce a lot of headache and risk.

What is Debt Settlement?

Also called debt arbitration, it refers to the process where the creditor and the debtor agree on an amount that is lesser than the original amount to be paid. However, in this case, the debtor has to pay a lump sum payment to the creditor at once.

Disadvantages

Unless your account is 4 months delinquent or more, creditors won’t be willing to negotiate. Additionally, you will also have to pay taxes on the debt forgiven. If you approach third-party providers to fix the deal for you, they are likely to charge you a very hefty amount. Also, there is no guarantee that the negotiation would take place since it depends entirely on the will of the creditor. Consequently, debt settlement is more of a gamble than anything else.

Another glaring disadvantage is that debt settlement tends to affect your credit score as you stop paying your creditor and don’t return the full amount.

Advantages

You will be saved from bankruptcy. One doesn’t need to dive deep into the demerits of bankruptcy; to put it crisply, you would not have to worry about asset liquidation. Also, this is a great way to reduce the principal amount of your debt. If you’re seeking a one-stop solution for your debt issues, debt settlement is the option for you.

Which is the best for you?

Though this is a question that varies from person to person, debt settlement happens to be the more popular solution. We must remember that debt management would keep your principal amounts constant and would increase the time frame. But debt settlement may reduce the principal amount to up to half the original amount.

If you have a huge amount to pay back, debt settlement is probably your best bet. It will reduce your cost, as the creditor would realize that they might end up with nothing otherwise.

As seen from this brief analysis, both methods have their respective pros and cons. In the end, it really depends on the person in debt as to which approach is better suited to them and what risks they are willing to take. For some, a destroyed credit score is better than bankruptcy. For others, the ability to pay it in an expanded time period is what they need. Irrespective of the alternatives one chooses, the industry has a solution.

For help with managing your debt, call Kevin Thatcher & Associates Ltd. at 1-866-719-8547 or contact us here to book your free consultation.

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